Make us your home page

Co-signer's misfortune can leave student borrowers on the hook

You have been faithfully making your student loan payment each month, and are making steady progress paying down the balance. But then your parent — who cosigned your loan — dies or files for bankruptcy protection. All of a sudden, your lender is demanding that you repay the loan in full, even though you have never been late with a payment.

Such automatic defaults are a recurring problem with private student loans, a new report from the federal Consumer Financial Protection Bureau finds.

The report analyzed more than 2,300 private student loan complaints and roughly 1,300 debt-collection complaints related to student loans submitted to the bureau since Oct. 1, 2013.

Rohit Chopra, the bureau's student loan ombudsman, said that the agency cannot say how many borrowers are affected by automatic defaults. The problem crops up with multiple lenders and loan servicers.

Most student debt is from federal loans, which students borrow on their own, generally without a co-signer.

The rules are different, though, for private loans. While such loans make up a much smaller share of the market, most high-debt borrowers have private loans, according to the bureau. Private loans usually require a co-signer, who is expected to step in and pay if the borrower cannot; more than 90 percent are cosigned, often by a parent or grandparent.

The automatic default can have devastating financial consequences for borrowers when it appears on their credit report because not only lenders, but also potential employers and landlords, may check credit reports.

Here are some questions about private student loans and co-signers:

How quickly can an automatic default appear on my credit report after my co-signer dies or files for bankruptcy?

That varies, depending on how quickly the lender is notified of the death or bankruptcy filing. But many lenders report to credit bureaus every 30 days, so it could show up on your credit report fairly quickly.

Can I ask to have my co-signer released from my loan?

Lenders often promote the option of having a co-signer released if the borrower has made a certain number of consecutive, on-time payments, typically, for at least two years, and has good credit. However, it is not always clear what criteria borrowers must meet to obtain a release. The bureau's report cited an instance in which a borrower met a lender's requirement of making 28 on-time payments, but then was told by the lender that 36 were required; after making the additional payments, the borrower was told the policy had changed and 48 payments were required.

How do I know if I'm eligible to have my co-signer released?

You should ask the loan servicer for details about its policy and request a release as soon as you think you meet the criteria, to help avoid the problem of a sudden default if anything happens to your co-signer. Co-signers can also directly request a release; the bureau provides sample letters for them to use.

Co-signer's misfortune can leave student borrowers on the hook 05/03/14 [Last modified: Sunday, May 4, 2014 8:30pm]
Photo reprints | Article reprints

Copyright: For copyright information, please check with the distributor of this item, New York Times.

Join the discussion: Click to view comments, add yours

  1. Florida GDP growth in first quarter 2017 ranks 21st among states, still outpacing U.S.

    Economic Development

    Florida's gross domestic product or GDP rose 1.4 percent in the first quarter, slightly faster than the nation's growth of 1.2 percent and placing Florida 21st among the states for growth rates, according to the U.S. Bureau of Economic Analysis.

    Not too hot. Not too cold.

    These Jackson Square Townhomes began hitting the west Hillsborough County market late last year and continued to be sold into the first quarter of 2017. The real estate sector was the biggest driver of Florida's gross domestic product, which rose 1.4 percent in the first quartrer of 2017.  [JAMES BORCHUCK   |   Times]
  2. A new app will help you find your favorite Tampa Bay food trucks

    Food & Dining

    What's new: Food tech

    Local food businesses are embracing new technologies and partnerships to bring us extra deliciousness.

    Michael Blasco of Tampa Bay Food Trucks says that everyone always asked about an app to help find their favorite food trucks. There is, available for iPhones and Droids.
  3. Another Pinellas foreclosure auction fools bidders, raises questions

    Real Estate

    For the second time in six weeks, a company connected to lawyer Roy C. Skelton stood poised to profit from a Pinellas County foreclosure auction that confused even experienced real estate investors.

    A Palm Harbor company bid  $112,300 for  this Largo townhome at a foreclosure auction July 21 not realizing the auction involved a second mortgage, connected to lawyer and  real estate investor Roy Skelton -- and that the bank could still foreclose on the  first mortgage.
  4. Clearwater-based USAmeriBank acquired by New Jersey bank in $816 million deal


    CLEARWATER — USAmeriBancorp, Inc., based in Clearwater, is being acquired by New Jersey's Valley National Bancorp in an $816 million deal, it was announced today.

    Joe Chillura, CEO of USAmeribank, shown inside a branch in Ybor City in this file photo.
  5. Outback Steakhouse sees growth in U.S. and Brazil markets in second quarter


    TAMPA — Restaurant sales were up at Outback Steakhouse and Carrabba's Italian Grill during the second quarter of 2017, but Bonefish Grill continues to lag at Tampa-based Bloomin' Brands.

    The Outback Steakhouse, on 4088 Park St. N, is showin on July 26, 2017. Restaurant sales were up at Outback Steakhouse  and Carrabba's Italian Grill during the second quarter of 2017, but Bonefish Grill continues to lag at Tampa-based Bloomin' Brands. [SCOTT KEELER | Times]