Wells Fargo & Co. (WFC) is changing the terms of its private student loan agreements, forgiving loans beginning Friday if a student beneficiary dies or is permanently disabled.

Previously, a student borrower's co-signer -- often a family member -- was required to continue repaying the loan, even if the student died or became incapacitated.

Wells Fargo said the policy shift was unrelated to a proposal currently wending its way through Congress that would require lenders to more clearly detail the responsibilities that co-borrowers would have in the case of a student's death or disability. The bill wouldn't require lenders to discharge loans in such circumstances.

The U.S. House of Representatives passed its version of the Christopher Bryski Student Loan Protection Act in September, and the bill was introduced in the Senate earlier this month. The bill honors a Rutgers University student who died in 2006 but whose family continues to make monthly payments on his $44,500 in private loans.

"We constantly are looking at our policies and looking at how our policies match up to customer needs," said Bonnie Wallace, vice president of enterprise partnerships at Wells Fargo. She said the company had been looking at options for such loan forgiveness since January.

Meanwhile, private student loan giant SLM Corp. (SLM), commonly known as Sallie Mae, already has in place a policy to forgive student loans when the beneficiary dies or is disabled.

Sallie Mae's Smart Option Student Loan provides co-signers "immediate and complete loan forgiveness if the primary borrower dies or becomes permanently disabled," according to company spokeswoman Martha Holler.

Not all major lenders are so forgiving. Student Loan Corp. (STU), whose shareholders Thursday agreed to sell its student loan operations to Discover Financial Services (DFS), doesn't offer relief to co-signers upon the death or incapacitation of a primary student borrower. Student Loan currently is 80% owned by Citigroup Inc. (C).

"A cosigner accepts responsibility for a loan if the other party is unable to pay, and they are expected to honor the contract as they would other obligations," Student Loan spokesman Mark Rodgers said.

A representative from Discover wasn't immediately available for comment.

Regarding whether Student Loan would consider changing its stance on loan forgiveness, Rodgers said, "As a general rule, we do not speculate on future business policies."

Wells Fargo won't send letters informing current borrowers and their co-signers of the new plan, but it will post information on its website and tell schools of the change. New credit agreements will state the loan forgiveness policy.

Student lenders say it's difficult to know how many borrowers may need loan forgiveness because of a student's death or disability, as they don't know if all co-signers actually ask for help.

Wallace said she couldn't predict how many loans the shift in policy would affect, though it would be "much greater than one a year."

-By Melissa Korn, Dow Jones Newswires; 212-416-2271; melissa.korn@dowjones.com
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