Collection agencies do not make condolence calls. I understand this, believe me. But there are certain events in life during which people deserve to be treated with more than standard human decency. (Yes, I realize I'm pretending that treating people with human decency is standard these days. Humor me.) A death in the family — especially the death of a child — is one of those times.
Or at least it used to be. The story of Francisco Reynoso's struggle to pay off his dead son's student loans, while dealing with collection agencies in the midst of his grief, suggests that times are changing. And not for the better.
Apparently, Ben Franklin was only partly right. These days, nothing in life is certain, except death, taxes, and student loans.
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.
ProPublica even applied its considerable investigative prowess to determining just who owns the student loans that collection agencies are hounding Freddy's bereaved family to pay — and couldn't do it. The resulting timeline shows how Freddy's Renynoso's student loan originated with Bank of America and Education Finance Partners, but was then sold and re-sold, again and again, until it finally "landed in a Swiss Bank and then fell off the map."
If that sounds familiar, it should. Student debt has ballooned in the last couple of decades, and more than tripled in the last ten years. The total amount owed by U.S. students now tops $1 trillion. Student loan defaults have reached their highest level in a decade.
Borrow horror stories abound. The Consumer Financial Protection Bureau collected thousands of them, and made them available online. Some students and graduates have turned to sugar-daddies and sex work to repay student loans. Other's have done the math and given up hope of ever paying off their student debt. Colleges are getting in on the act, by acting as collection agencies and withholding transcripts from graduates who are in default on student loans — even though the colleges themselves aren't out any money.
Meanwhile, the usual suspects are making huge profits.
So just who are the lenders profiting from the massive student debt load?
You already know some of the names: JPMorgan Chase, U.S Bank, Citi, Bank of America. Others are non-bank student lenders. What all of them have in common, though, is that their practices are shrouded in secrecy. A recent release from the Consumer Financial Protection Bureau, the brainchild of now-Senate candidate Elizabeth Warren, called for an investigation into the industry:
It has been operating in the shadows for too long, Raj Date, the Treasury Department adviser who is running the Consumer Financial Protection Bureau, said in a release. Shedding light on this industry will benefit students, lenders, and the market as a whole.
Record borrowing by college students who are graduating without jobs could lead to major problems in the nation's economy, according to a recent report by Moody's Analytics.
…The Moody's report points to the fact that student loan volume growth, unlike other lending, has accelerated during the recession. This is due in part to people seeking more education and retraining as well as some students opting to remain in college longer to avoid poor job prospects.
The report indicated that in addition to college enrollment tripling over the past four decades, "demand [for student loans] is driven by the cost of education, which has grown at an extraordinary rate over the past three decades." Based on Consumer Price Index data, the cost of tuition and fees has more than doubled since 2000, and has outpaced inflation across all goods, health care, housing and energy.
Student lending has also increased due to state governments making cuts to their public education institutions, causing colleges to raise tuition. Further, college endowments have recovered slowly throughout the economic downtown, forcing schools to increase tuition and limiting the amount of in-house money for scholarship use.
The Reynoso's are hardly alone. An April article by ProPublica's Marian Wang (who also wrote the Reynoso family's story) shows that even students with federal students loans aren't safe. Now that the federal government is transferring student loans to loan servicing companies, student and their families are getting lost in the shuffle.
Back in April, I wrote that lawmakers have "transformed student debt into life-long debt." Now, it's "zombified" student debt, that follows you to the grave, and then feeds on your family once you're in the ground.
Freddy Reynoso died on September 4th, when he lost control of his car on his way back from a job interview, and the car flipped over. Marian Wang writes that at least one of Reynoso's loans was cancelled after his death: his federal student loan, because the government cancels student loans if a student dies.
Not so with private student loans. They are not dischargable through bankruptcy, hardship, or even death.
According to Francisco Reynoso, the calls started a few months after his son died. Francisco Reynoso says the debt collectors more or less told him, "We don't care what happened to your son, you have to pay us." They didn't care about the law either. Legally, debt collectors must go through the borrower's attorney, once one has been hired. But the debt collectors kept calling — every day, several times a day — even after the family hired and attorney.
Meanwhile, the only party that knows,and is obligated tell Francisco just who owns Freddy's student debt, and how much is owed, has yet to do so. Not that he hasn't asked them — in writing.
Maybe conservatives who insist the market can fix student loans, should ask the Reynoso family what they think about that.