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My Mom Died and I Have to Pay Her Student Loans?!

Dealing with the death of a parent is sad and complicated enough without having to deal with bills from a student loan servicer. But as Axton Betz-Hamilton helped her widowed father deal with the death of her mom Pamela, she found herself lost in red tape trying to beat back bills from FedLoan that just kept coming.

The often complicated issues surrounding student loans and death have given the lending industry a bad name in the past — but the Betz family situation should have been simpler than most.

Pamela, who was in the middle of a Ph.D. program at Ball State University, died in February. At the time, she owed about $100,000 on a series of federal loans. According to the U.S. Department of Education, federal loans can be discharged upon the student’s death. (Private loans are another matter; co-signers can be liable for the loan).

Ball State sent a “separation date” notice to the Betz home this spring, but no instructions on what to do about the debt. Betz-Hamilton did some research and learned she needed to send a copy of her mom’s death certificate to the loan servicer, FedLoan. She sent it in September, and has a U.S. Mail return receipt showing FedLoan received the notice Sept. 17.

But the bills kept coming, now with stern warnings that payments were overdue.

Axton’s father called FedLoan on Oct. 1 and was told there was no record of a death certificate on file.

“According to (my father), they (didn’t) believe she’s dead,” Axton said.

She considered sending another copy, but wondered what good that would do.

“I felt like (it) went into a bureaucratic black hole,” she said.

She called Ball State, looking for someone at FedLoan she could talk to. No luck.  More bills. FedLoan was demanding $900 a month.

Exasperated, Axton contacted me.

Frustrated With the Situation

FedLoan, based in Pennsylvania, is one of a handful of servicers who handle federal student loans — loans backed by the Department of Education, distinct from private student loans that are granted by for-profit lenders. FedLoan is an arm of the Pennsylvania Higher Education Assistance Agency (PHEAA).

When I contacted Mike Reiber, a spokesman for PHEAA, he agreed to look into the issue immediately. Within an hour, he called Axton to say FedLoan had indeed received the death certificate, but was waiting on Department of Education approval of the loan discharge.

Reiber said he could not discuss the specifics of Betz’s loan for privacy reasons, but confirmed that “we have received all the information we need and the process is ongoing.”

According to Axton, Reiber blamed the U.S. government budget shutdown (which was in effect Oct. 1- 16) for the delay when they spoke.

Axton was relieved, but still frustrated.

“I still don’t think that explains why that information was not in their computer for the customer service rep when Dad called them,” she said.  “I’m certainly glad they called me yesterday, but from the get-go, I wanted a person to send the death certificate to.”

She also complained that there was no way for her to know whether FedLoan had received the death certificate. Axton, herself a consumer economics professor, fretted that others might not be able to navigate the system as successfully.

“What’s a non-Ph.D.-without extensive professional experience in consumer economics/consumer studies to do? In other words, what could the average person do in this situation?” she said. “It shouldn’t have taken me having to contact a national consumer affairs reporter to get someone to do something.”

Red Tape Wrestling Tips

Betz’s story highlights to need to send important documents return receipt requested.  It also shows the need for persistence.

Reiber says it normally takes 4-6 weeks for a servicer to officially discharge a student loan after it is officially notified of the death. He provided this timeline of events:

  • Once the servicer receives the death certificate, it begins processing the loan discharge unless a co-maker exists on the loan(s).
  • It takes approximately 10 business days to review a death certificate and update the account to a “Verified Death” status.
  • Every two weeks, a report is sent to the Department of Education (DOE) listing any new accounts that were placed into a “Verified Death” status.
  • Approximately a week after receiving this report, the DOE approves a write-off of the account.
  • Treasury Management then applies a write-off transaction (5002) to bring the loans down to a $0 balance and any payments received after the date of death are refunded to the borrower, unless an estate has been set up.
  • Then, Treasury Management will refund the estate of the deceased.
  • If the borrower has an estate set up, the executor/executrix has the authority to cash the checks made payable to the borrower.

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