Does anyone know what happens to a private loan if the cosigner dies?
That will depend on the terms of the loan. There is no one-size-fits-all answer.
It would be smart to hold a life insurance policy for the cosigner for the amount owed on the loan. That way you won’t get stuck with a debt you simply cosigned for but did not expect to have to pay off.
Usually, the primary signer (student?) is still liable for the loan as student is primarily liable even if the cosigner is alive but just doesn’t pay. The government loans do forgive the PLUS loans, but then the primary borrower is the one who died.
There could be credit insurance on a private loan, but usually only on the primary borrower and spouse.
Life insurance is necessary on the student and the parents if you take out one of these loan. I saw a video about the double heart ache of parents who had signed for loans and there child had died. They had a significant amount in loans and had to deal with that in addition to dealing with their grief. They did not know the loans were not cancelled like the standard government student loans.
If the cosigner dies (the adult), then sometimes the bank will demand that the loan be paid in full immediately…since there no longer is a guarantor. This is why some banks won’t allow grandparents to cosign…too often they die before the loans are paid off.
Yes, there should be life insurance for both student and cosigner in case either one dies. But many don’t think to get policies.
Check with the bank about its policies.
Sometimes the bank will release the co-signer after a certain number of payments are made. In the case of death of the co-signer, they may allow a subsitution.
The truth is if the deceased is the co-signer and the primary borrower is making all the payments, the bank may not even know the co-signer is dead.
@twoinanddone this came up a few years ago, and I asked that exact question…would the bank even know that the cosigner died. And someone chimed in that something triggers (I have no idea what that is), and outstanding debts held by banks that belong to the deceased are notified. Maybe thru probate, maybe by SSN? I have NO CLUE. But this exact subject came up a couple of years ago here on College Confidential
If the estate is probated and the debt is listed, there would be a notice sent to all creditors. If the estate is not probated or if the executors don’t list the debt, it is unlikely the bank would ever know. I don’t think the credit reporting agencies even get notices.
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If it’s a big, national bank, then the SSN registry which records all deaths of SSN holders daily and gets automatically uploaded to every large bank in the country is going to inform the bank of the death. Just try to withdraw $100 from an ATM at Bank of America using the card of someone who died two days ago (i.e. an elderly parent). You can’t.
A small credit union? don’t know.
Whether the bank cares or not about the death of the cosigner is another story. But the speed and efficiency with which deaths are disseminated to relevant agencies, banks, etc. is pretty awesome. This prevents fraud on multiple levels- medicare, credit card, pharmacy co-pays, identity theft…
It didn’t work that way for my father who died recently. WE told the bank that he was dead and not to accept the SS automatic payment that was due. WE then went to SSA about two weeks later, with the death certificate, and had them update the records and transfer the payments.
We still have banks that will not accept that he’s dead because we didn’t probate an estate.
I don’t know how it would be reported. SSN are no longer used as medical ID numbers, so hospitals can’t really send out that info. We didn’t receive the death certificate until almost 2 weeks later.
You don’t need the physical certificate for the death to be registered…I’ve arranged several funerals for elderly family members and the funeral directors would not process the paperwork without a SSN.