August 28, 2015
Grieving Father Struggles to Pay Dead Son’s Student Loans
Posted on Jun 15, 2012
By Marian Wang, ProPublica
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.
Square, Site wide
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.”
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