I think the 20% is the mandatory backup withholding. The actual tax will be different and probably more.
Note that, depending on your other income and filing status, you could potentially save $4000-$6000 in tax by splitting the withdrawals over 2-3 years instead of all at once. You'd have to balance that with the interest you would pay in the mean time.
Also, because of the taxes and penalties and lost opportunity for future growth (that $70,000 will likely triple by the time she is 67), it's almost always better to keep paying the loans, if you can afford the payments. One interesting possibility would be to roll the entire 401(k) over into an IRA, and then take a loan from the IRA. She would be collateralized by her own deposits, the interest rate is usually pretty low, and she would essentially be paying the interest to herself. It might not even show up on a credit report. Not all IRA plan administrators will allow loans so you might want to shop around.
