Father struggles to pay dead son's student loans - Coeur d'Alene Press: Local News

Father struggles to pay dead son's student loans

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Posted: Tuesday, June 19, 2012 6:30 am

A few months after he buried his son, Francisco Reynoso began getting notices in the mail. Then the debt collectors came calling.

"They would say, 'We don't care what happened with your son, you have to pay us,'" recalled Reynoso, a gardener from Palmdale, Calif.

Reynoso's son, Freddy, had been the pride of his family and the first to go to college. In 2005, after Freddy was accepted to Boston's Berklee College of Music, his father co-signed on his hefty private student loans, making him fully liable should Freddy be unwilling or unable to repay them. It was no small decision for a man who made just over $21,000 in 2011, according to his tax returns.

"As a father, you'll do anything for your child," Reynoso, an American citizen originally from Mexico, said through a translator.

Now, he's suffering a Kafkaesque ordeal in which he's hounded to repay loans that funded an education his son will never get to use — loans that he has little hope of ever paying off. While Reynoso's wife, Sylvia, is studying to be a beautician, his gardening is currently the sole source of income for the family, which includes his 18-year-old daughter Evelyn.

And the loans are maddeningly opaque. Despite the help of a lawyer, Reynoso has not been able to determine exactly how much he owes, or even what company holds his loans. Just as happened with home mortgages in the boom years before the 2008 financial crash, his son's student loans have been sold and resold, and at least one was likely bundled into a complex Wall Street security. But the trail of those transactions ends at a wall of corporate silence from companies that include two household names: banking giant UBS and Xerox, which owns the loan servicer handling the bulk of his loans. Left without answers is a bereaved father.

The risk of cosigning on Freddy's loans seemed to have been worth it when he graduated in May 2008 and began looking for a job in the music industry. He was on the way back from a job interview on the evening of Sept. 4 when he lost control of his car and it rolled over. Freddy's family learned of his death the next morning.

The grief was relentless; the debt collectors, ruthless. By law, debt collectors must go through a debtor's attorney if one has been hired, but even after Reynoso hired an attorney, he said they continued to call him every day, several times a day, for about a year and a half: "I would tell them to call the lawyer. And they would still say, 'The lawyer doesn't owe us. You're the one who owes us. You're the one who has to pay us.'"

Meanwhile, Reynoso was still reeling: "I was crying for him every day," he said.

The question of to whom Reynoso's debts are actually owed — and who has the authority to forgive them — is a mystery that thus far neither Reynoso nor his lawyer has been able to solve.

One of Freddy's student loans was cancelled after his death without a problem: his federal loan. That's because the government cancels student loans if a student dies.

But the bulk of Freddy's loans were private student loans, which typically offer less favorable interest rates and fewer consumer protections. Only a few private student lenders offer debt discharges in the event of the borrower's death, though public outcry over specific cases has swayed lenders to grant occasional death discharges.

But for the Reynosos, just figuring out whom to appeal to has been an exercise in futility. Working with a law firm, Francisco Reynoso sent copies of Freddy's death certificate to any company that sent paperwork about the loans. He remembers being told by at least one company that they'd call him to work out a solution. But no one ever did, he said, and the bills kept coming — each time larger than the last with more interest, more late fees.

"We sent out death certificates to all of them," said Dolores Orozco-Serrano, a legal administrator with Borowitz & Clark, the bankruptcy law firm handling the Reynosos' case. Only the federal loan was discharged. "Everyone else was not cooperative at all."

Freddy Reynoso's private loans were originated by two companies — Bank of America and Education Finance Partners. Neither company still holds onto them. ProPublica tried to find out who did.

First, the Bank of America loan: Almost as soon as Bank of America originated it, the loan was sold to a Boston-based company called First Marblehead, once one of the biggest securitizers of student loans. But nowhere in the paperwork sent to the Reynosos and reviewed by ProPublica does the name First Marblehead appear. Instead, the Reynosos have received paperwork emblazoned with the logo of National Collegiate Trust. That's the name First Marblehead gave to bundles of loans that it turned into Wall Street securities and sold to investors. Was Freddy's loan bundled into a security? And if so, who owns it now? First Marblehead has not returned repeated requests for comment.

Freddy Reynoso's other loans followed an even more complicated path — and one tainted by scandal. Education Finance Partners, the private student loan company that originated the largest portion of Freddy's student debts, reached a $2.5 million settlement agreement with the New York Attorney General's Office in 2007 to settle charges that it had paid colleges across the country to steer students toward its high-interest loans. And Berklee College of Music, Freddy's alma mater, was one of the schools singled out in that investigation for accepting the improper payments. Berklee College of Music spokesman Allen Bush acknowledged in a statement to ProPublica that the school accepted a total of $23,000 from Education Finance Partners between 2005 and 2007, but said that "all of these funds were deposited into a financial aid account and disbursed through a need-based grant system to current Berklee students."

Education Finance Partners, Freddy's lender, never admitted any wrongdoing. A year after the settlement, the company declared bankruptcy.

But who holds Freddy's loans now remains a mystery. The company's archives — now kept by a company called Loan Science — show that his loans were scooped up by the Swiss bank UBS in October 2008. But the entire portfolio changed hands again in 2009. "That 2009 sale was private, it was bound by a confidentiality agreement and, therefore, we're not in a position to disclose the identity of the purchaser," wrote a UBS spokesman in an email.

One possibility: Freddy's loan may have been among those acquired by the Swiss National Bank, Switzerland's equivalent of the U.S. Federal Reserve, when it bailed out UBS. (See our sidebar.)

Reynoso and his lawyer don't even know exactly how much he now owes, but it appears to be well into the six figures. The loan that Bank of America originated is clear: At the end of March, the balance was around $7,400, according to Mike Reiber, a spokesman for PHEAA, a company that once serviced that loan. (With the loan in default, it now resides with First Marblehead, Reiber said.) But the other, much larger portion of Reynoso's debt remains murky. A 2009 lending disclosure document indicates that through Education Finance Partners, UBS extended nearly $160,000 in credit to Freddy Reynoso, and projected that if he made all payments as scheduled, the loan for his music education would end up costing him $279,000.

Seemingly the only party who knows — and is obligated to tell Reynoso — about this debt is the servicer, ACS Education Services.

Citing privacy reasons, ACS declined to disclose any specifics about the loans to ProPublica, even with Reynoso's full consent. Three weeks ago, Francisco Reynoso himself sent a letter to ACS asking who currently holds the loans, but he has received no response.

ACS is a subsidiary of Xerox, so ProPublica put in several calls there. Given more than a full week to respond, Xerox's corporate communications team has yet to provide a response to queries about when Reynoso can expect basic information about his son's loans, including the amount he owes and the name of the company that now owns the debt.

Even with the help of a lawyer, Reynoso's options are limited. Unlike most kinds of debt, private student loans are not dischargeable through bankruptcy, though Sen. Dick Durbin, D-Ill., is leading an effort to change that. So for the time being, Reynoso's hope hinges on a narrow provision in the bankruptcy code called a hardship discharge. The bar for proving "undue hardship" is high, but Reynoso still hopes for the best as he waits for a ruling from the bankruptcy judge. As he puts it: "I'm in the hands of God."

Source: ProPublica


  • Discuss

Welcome to the discussion.


  • sieunhangame posted at 7:21 pm on Thu, Oct 25, 2012.

    sieunhangame Posts: 1

    One of our children received student loans, but we were not asked to sign and would not have. Not sure why some parents are asked to sign, and others not asked to sign.

  • Joseph Jr posted at 7:56 am on Sun, Jun 24, 2012.

    Joseph Jr Posts: 512

    This is truly such a sad and unjust situation, for the father. Yet, we must remember not to co-sign for people unless we truly acknowledge our responsibility ethically, to pay the debt should the student be unable to.

    I sure wish we knew what kind of auto insurance the young man had. There may have been coverage in the event of injury or death. Just wondering.

    One of our children received student loans, but we were not asked to sign and would not have. Not sure why some parents are asked to sign, and others not asked to sign.

    If Durbin get's his way, you can bet that there will be a mass of bankruptcy filings by students who do not want to pay off their loans. Just sayin'...That will add fuel to our flailing economy. Course, the Dem's just want to tax everyone who works hard, to pay for what others want.

  • kBled posted at 2:52 pm on Sat, Jun 23, 2012.

    kBled Posts: 70

    Despicable behavior on the lender's part. Why don't we just bring back debtor's prison while we're at it; apparently browbeating the blood from a stone is not enough.

  • Jeffrey Wherley posted at 10:26 am on Thu, Jun 21, 2012.

    Jeffrey Wherley Posts: 3969

    If you co-sign for a loan, you are responsible. No matter what happens. Pay up.

    This should serve as an example to every other parent that Co-signs on a student loan. Don't do it! If you can't get a personal Loan don't get sucked into these "loanshark" Loans.

  • Anna_7 posted at 12:51 am on Wed, Jun 20, 2012.

    Anna_7 Posts: 12

    I have heard this story, it's really sad that this man is in such difficult situation.He lost a son and now should pay for the education his son will never use.I do not even know what to say and what can be a good advice for him.But it's not right that he should pay, there should be a way out.He needs financial help and cash in advance to survive and it's hard to imagine where he can take out such an amount of money.Probably the best option for him is to use a lawyer's advice to see what he can do, because it's just not fair if he will have to pay off this money till the rest of his life.

  • DEADTIME posted at 11:42 pm on Tue, Jun 19, 2012.

    DEADTIME Posts: 11

    Solyndra steals billions, not an issue. Your kid dies, you better pay up......F the banks, F student loans. Don't be a debt slave, don't take out any loans, don't have credit cards. Live within your means, work hard, save, pay cash, be free.

  • voxpop posted at 1:19 pm on Tue, Jun 19, 2012.

    voxpop Posts: 738

    The best answer for student loan issues is to get the federal govt out of that business. Same goes for mortgages and anything else. Let the banks do the lending and let the borrower declare bankruptcy. There'll be far fewer loans but any risk won't be on the rest of us. We'd be better off putting all that federal money into universal health care.

  • crust123 posted at 11:50 am on Tue, Jun 19, 2012.

    crust123 Posts: 218

    Betrayer of Hope, interesting name. i agree with you, there should be much compassion for this man, but if you are expecting to find that on blogs, you are looking in the wrong place. It is a horrible situation and hopefully there will be some way to work out a solution for everyone.
    However, when did it become "CRIMINAL" to ask someone to honor an obligation. The man signed a guarantee and has an obligation. When did it become criminal to enforce such an agreement??
    By the way, i suspect we are on opposite sides of the spectrum, but i agree with you, hang all the bums that run our government and start over with some decent honest folks who care about this country and our future, and not just themselves and their reelection.

  • cococo posted at 11:47 am on Tue, Jun 19, 2012.

    cococo Posts: 148

    Welcome to AMERICA....home of the Americants! I must agree with "betrayer of hope". Let's include a lot of real estate agents in there too. Somebody lives next door to these people....let them know what you really think. Call them out for being the corrupt greedy bastards they really are. We know life in this country is all about the money....but for these people, it is JUST about the money.

  • DeNiles posted at 11:46 am on Tue, Jun 19, 2012.

    DeNiles Posts: 2450

    Betrayer...... It is called being responsible for your own decisions.

    Do you have a mortgage or a car loan, or carry credit card balances? Think if you die that those debts just evaporate? Nope.... they're all pretty much tied to some form of collateral that the lender will repossess or sell (unless the payments are continued). But on the occasion of your demise they do not go away, unless you have an insurance policy to provide for such an event.

    Now obtaining a loan on good terms means being able to understand how lending works. That's one more reason to pay attention in school. If you're an idiot you will be preyed upon by medical quacks, unethical lenders, drug pushers, etc.... and so forth.

    Most posters here have expressed their sorrow for the circumstances.

    Oh, as for Republicans and lending........ Check out who ran those mtg banking committees (see Barney Frank), who FNMA and FREDDIE MAC supports, etc.... They love the libs cuz the libs want ALL the people to get home loans whether they qualify or not. In fact they made it law so not giving out bad loans was determined to be illegally discriminatory. Obama got more backing than most from this industry.

  • dtsinidaho posted at 11:45 am on Tue, Jun 19, 2012.

    dtsinidaho Posts: 251

    If you buy a bull, and your bring it to your farm and it dies through no fault of your own.. you don't have to pay according to time honored court rulings. Can't the same be said of buying an education and it doesn't work? Just an Idea.

  • Betrayer of Hope posted at 9:06 am on Tue, Jun 19, 2012.

    Betrayer of Hope Posts: 135

    What's sad is how the man is getting little sympathy from the folks. I am sure if any one of you were in his shoes you should be singing a different song. This is CRIMINAL. These financial firms are making billions of student loans that will not be forgiven under and circumstance because the CRIMINAL banksters and Wall ST thugs had the laws changed while Bush and the Republicans controlled the government. Student loans are going to be the next bubble.

    Tell me how it's fair or free market, or even sensible that debt is not forgiven if someone DIES, but if MF Global fails to segregate CUSTOMER funds and loses a few billion making bad bets in the derivatives market they can get bailed out or declare bankruptcy. What about Bear Sterns, Meryl Lynch, Citigroup, the list goes on and on.

    And all you people have to say is, borrow wisely. How about we hang the banksters who run our government. How about we bring these vampiric criminals to justice. But no, you'll just sit there behind your keyboard, not caring, and when you're favorite tv show comes on you'll get out your frozen tv dinner and kick back and let the world go by without you.

  • USCITIZEN posted at 8:38 am on Tue, Jun 19, 2012.

    USCITIZEN Posts: 13

    Perhaps he should be allowed to file Chapter 13 along with greedy Judge Peterson.

  • NoName posted at 8:13 am on Tue, Jun 19, 2012.

    NoName Posts: 253

    Perhaps he should just return to Mexico where he came from.

  • My2sence posted at 8:12 am on Tue, Jun 19, 2012.

    My2sence Posts: 317

    I agree, it's a risk a willing co-signer has to accept, but in this case, I don't think the dad knows WHO to pay. I graduated from ITT 13 years ago, back then I had a student loan for 25 thousand dollars, I have been making my monthly payments ontime, and today I owe just about.....25 thousand dollars.
    I'm exaggerating (just a little bit) wish I knew then, what I know now.
    Sorry for the loss of your son.

  • Reality posted at 7:16 am on Tue, Jun 19, 2012.

    Reality Posts: 32

    My condolences for the loss of your Son. While the story is heartbreaking, the responsibility for repayment lies solely with Francisco. He chose to co-sign on the hefty private student loans, making him fully liable should Freddy be unwilling or unable to repay them.

  • DeNiles posted at 7:08 am on Tue, Jun 19, 2012.

    DeNiles Posts: 2450

    Um, well...... An unfortunate situation to be sure, but the terms of the loans were there to be understood prior to committing to them. Consider another situation. If the young man had lived, graduated and went to work, he'd still be paying off what sounds like some very onerous debt. These were probably not smart loans from the beginning.

    If you examine some private colleges like ITT and Phoenix you will find certain predatory-esque business approaches. Many of these boiler-plate scholastic programs are aimed at getting marginally capable people to enroll and take out gov't back student loans. Few of them graduate and many default on their gov't backed loans and the taxpayers hold the debt. But the colleges make out well.

    The caveats all apply. If no laws are broken the contracts are binding. Dad is on the hook because he agreed to risk that responsibility. It is the same for all of us. Read and understand your contracts before you sign them. Ask the questions. Borrow wisely.

  • concernedcitizen posted at 6:48 am on Tue, Jun 19, 2012.

    concernedcitizen Posts: 2530

    This story makes me sad and mad at the same time.

    Forgive this debt.

    It is not like the father can use his dead sons education to his advantage and the son, well........

    I feel for the man.

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