How the Death of a Co-Signer Can Affect Your Student Loan
The death of a parent, guardian, or loved one can be a devastating blow. But amidst the emotional upheaval, many college students face an unexpected extra challenge: dealing with financial issues during the death of a co-signer.
Getting a federal student loan rarely, if ever, requires a co-signer. But private education loans often do—studies show as many as 90% of private education loans have a co-signer—and many students rely on private lenders to make up the difference between what their federal aid will cover and what their college actually charges. For most traditional students, having a parent or guardian co-sign on a private loan is part of the process of getting an education loan beyond federal loans—and it’s not unknown among non-traditional students, either.
But when a co-signer dies, some private lenders may demand early repayment in full—which can lead to default and major financial challenges for the borrower. According to the Consumer Financial Protection Bureau, most private lenders stipulate in their contracts that they have the power to demand complete repayment in case of the death of a co-signer—or the loan will be considered in default.
This can have real-life consequences for grieving borrowers. If your loan goes into default, it can negatively affect your credit score for years—which can make it more difficult for you to rent an apartment, buy a car, get a small business loan, or even get a job. And the worst part is that, according to the report, many lenders do it automatically—without even notifying the borrower.
So what should you do if your co-signer dies? Amidst a time of upheaval and grief, it can be difficult to think of your student loans. But unfortunately, for many people, it’s necessary. Here are a few steps you can take.
Contact your lender immediately—even if you haven’t heard from them
Just because you haven’t received notice that your loan is in default doesn’t mean it’s not. And it can happen even if you have a perfect payment history. Call your lender immediately to find out what the status is and what to do next.
Transfer your loan to another co-signer
If your co-signer passes away, you can transfer it to another co-signer if needed—or even to yourself, if you have built up a good credit history since you took out the loan and you’re in a financial position to do so. This may be all that’s needed to reassure your bank about the loan’s stability and keep it out of default.
Be aware of your co-signer’s financial status
It doesn’t just happen when a co-signer dies. The report specifies that your student loan can go into default through no fault of your own if your co-signer files for bankruptcy protection as well—and the lender may demand repayment in full from you if this happens.
Refinance the loan. If necessary, you may be able to refinance the loan with a different lender—either on your own or with a different co-signer. If you call your bank and find out your loan is set to go into default, ask about the possibility of this.
Ask for a grace period
If you do find out that your lender is demanding payment in full for a loan to fund your traditional or
, ask for some time to figure things out. This isn’t an unreasonable request, and it can give you the opportunity to decide whether to find a new co-signer, choose a new lender to refinance with, and consider other options as well.
A death in the family is one of the most stressful events most people go through. In addition to all the emotional stress and demands that occur during this time, it’s unfair to have to worry about a student loan suddenly placed in default—but that is exactly what some lenders force us to consider. Get in touch with your bank immediately after a co-signer dies, and hopefully you should be able to keep on top of your loan’s status—and keep the default from ruining your credit.
Federal Student Aid: Understanding Default
Consumer Financial Protection Bureau: CFPB Finds Private Student Loan Borrowers Face Auto-Default When Co-Signer Dies or Goes Bankrupt
More About Understanding Student Loans
- Credit Repair Services You Should Never Pay For
- Questions You Should Ask Before Applying for Student Loan Forbearance
- The Bank on Students Act: What It Is, and How It Could Help Student Borrowers
- How the Death of a Co-Signer Can Affect Your Student Loan
- Peer-to-Peer Student Loans: What They Are, and How They Can Help You Pay for College
- If You're Unable to Work Because of a Disability: What Happens to Your Student Loan?
- New Rules for Debt Collectors: How They Could Affect Your Student Loan
- Having Trouble Repaying Loans? The Department of Education May Be in Touch