Dec. 21, 2012 -- A mourning father in California finally resolved his dead son's student loan debts more than four years with an exhausting journey through the courts and other maneuvers.
Francisco Reynoso, 57, of Palmdale, Calif., is a self-employed gardener. His son, Freddy, died in a car accident on Sept. 5, 2008 after graduating from the Berklee College of Music in May 2008.
The $200,000 in loans that he co-signed became due two months after his son's death, which the Reynosos tried to pay with their $20,000 a year income. While their son's federal loan through the U.S. Department of Education was voluntarily discharged due to Freddy's death, the only recourse for the Reynosos to discharge his private loans was through legal means.
With only a second grade education from Mexico, Garcia only speaks Spanish and makes $1,573.33 a month. His wife was laid off from her job as a machine operator in 2003, went to cosmetology school in 2009 but has struggled to find employment.
Erik Clark, an attorney for Reynoso, said private student loan debt is "blowing out of control" and lawyers are unlikely to want to take on legal cases involving the issue.
"We hardly ever take them," Clark said about student loan legal cases.
There are various laws and guidance for lenders, but a family in New Jersey is searching for a member of Congress to reintroduce a bill that would encourage more transparency when a family member co-signs a student loan.
More than six years after Christopher Bryski died from a traumatic brain injury, and two years after the late Rep. John Adler, D-N.J., introduced the Christopher Bryski Student Loan Protection Act in 2010, the Bryski family is hopeful Christopher's Law, as they call it, will be re-introduced in the next session starting in January.
Last April, the private lender forgave the remaining $30,000 or so of Christopher Bryski's loans that his father had co-signed.
In July 2011, the Federal Trade Commission released guidelines around debt collection for those who have died. In July 2011, the Federal Trade Commission released guidelines around debt collection for those who have died, saying contacting a relative other than the deceased person's spouse, parent or guardian – if the person is a minor – when they have no legal obligation to pay the debt, may be violating the FDCPA. The FTC also explained how a debt collector can avoid engaging in deceptive practices in communicating with a third party about a decedent's debts.
The Fair Debt Collection Practices Act (FDCPA) of 1996 amended the Consumer Credit Protection Act to prohibit abusive practices by debt collectors.
"We're not trying to create a new law," Ryan Bryski, his older brother, said. "But someone needs to put the laws that are out there together."
In order for a lender or family of a deceased borrower to discharge private student loan debt, they often file for bankruptcy in hopes that a judge will deem that the student loan imposes an undue hardship on the debtor.
"It's unlikely a client who has undue hardship will have the funds to pay attorneys for the work that goes into this. Nobody is going to get rich trying student loan cases," Clark said.
Reynoso filed for bankruptcy on April 20, 2012 in his quest to prove "undue hardship."
"While that standard doesn't sound high, it is actually very high, which is why these cases are so difficult to proceed with," Clark said.
Reynoso and Clark had to deal with a complicated paper trail of his son's loans, as reported by ProPublica. The first loan was from Bank of America. It was later sold to First Marblehead's National Collegiate Trust, which didn't respond to Reynoso's lawsuit. Fortunately for him the judge then awarded him a default judgment.
"It was not great lawyering on our side. They just didn't respond," Clark said.
The larger part of the loans passed through the Swiss bank UBS and then was acquired by the Swiss central bank during the financial crisis. StabFund ultimately settled with Reynoso, said his attorney, though he can't discuss the terms of the agreement.
StabFund did not respond to a request for comment.
Clark said Reyoso is off the hook after a long effort, but unless there are changes in public policy or greater awareness about student loans, graduates--or their heirs--loaded with unaffordable debt have little recourse but to file for bankruptcy to "get creditors off your back."
"The vast majority of people we're seeing have enormous student loan debt and can't get employed," he said. "They are 40 or 50 years old who go back to school for master's degrees that earn nothing. They will never pay this off."
Ella Edwards, 61, struggled for three years to discharge her dead son's loans after he died in 2009 at age 24. Jermaine was the only son of Edwards, a single mother in Michigan who had retired. To try to repay his loans, she went back to work in a sewing job that paid $9.50 an hour.
She started a petition on Change.org to ask the loan servicer to discharge his private loan, and charitable gifts allowed her to pay off the loan. She received a $10,000 charitable donation from radio talk-show host Tom Joyner on Dec. 4 and another $1,000 gift. Edwards's financial problem may have been resolved and she is thankful to Joyner and the public, but she said she still wants to raise awareness about the problem of co-signing a private student loan.
"I know how they harass you so bad," she said. "I have not walked away from the other mothers because I am saved."