<p>"College graduates with private student loans know the importance of staying current on their payments. But a new report by the Consumer Financial Protection Bureau finds that even consumers who pay their loans on time are finding themselves placed in default when the co-signer of their loan dies or declares bankruptcy." ...</p>
<p>Yikes! That would be infuriating to the adult former student paying off the loans. </p>
<p>I am not a fan of co-signing and think it is a dangerous thing. You never know what is going to happen, even if you have perfect credit for 30 or 40 years. </p>
<p>It makes we wonder if the same is true for cosigning other loans such as home mortgages.</p>
<p>^^ it is the same if the terms of the loan require it. However, home mortgages are secured, so the bank has security if one party dies. Home loans don’t often have co-signers, but co-borrowers, with both having title to the property.</p>
<p>Think of it from the point of view of the bank. The bank lent the money based on the application of two borrowers, one who probably has good credit and assets (parent/grandparent) but has little intention of paying, and the second probably a poor student who may be paying but has no security. One of those two has died. If it is the good credit applicant, then there may be an estate or some other source of funds from which the bank can recover, but only if the bank acts quickly and files a claim against the estate. The bank can’t file a claim unless the loan is due, therefore, the terms of the loan allow the bank to call the loan upon death of either borrower. If the bank only wanted the student as the borrower, it wouldn’t have required a co-signer at all. Why would it now, after lending the money, be okay with just the student as solo signer when it wasn’t okay with that at the beginning of the loan?</p>
<p>Unsecured loans are different than loans secured by homes or cars. The co-signature is the only security, and that’s gone.</p>
<p>thanks 2in1, that makes sense.</p>
<p>Does anybody know how the student loan provider would find out the co-signer has died? I co-signed a loan for my nephew. I knew full well that I would be on the hook to pay it back if he wouldn’t or couldn’t, but I didn’t realize he was on the hook for the full amount if I died. I’ve received the occasional privacy notice from the company, but never a bill or any other communication from them. I assume he’s paying on time. If I were to die, how would they even know? </p>
<p>I apologize if this is a stupid question. </p>
<p>As part of the probate process, the executor must notify all known creditors of the death. So, if the executor is properly doing their job, at the death of the co-signor, the lender should be notified. In most instances, executors also publish public notices in newspapers to put any “unknown” creditors on notice about the death and time to file a claim - those small print notices in the back of the paper. After so much time and so many published notices, creditors are barred from making claims against the estate. Guess what, many major creditors have services that scan the legal classifieds for such probate notices. </p>
<p>The executor has a very good reason for following the probate law. In almost every jursidiction, the executor can be held personally liable if distributions are made to heirs without the proper settlement of debts.</p>
<p>EDIT - I suppose in this instance, the executor doing their job as required by the probate act alerts private student loan lenders of the death of co-signers triggering a technical default.</p>
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<p>Wouldn’t this depend on the circumstances? At the time of taking out the loan, the student was presumably marginally employed, at most. When the co-signer dies, the student may have graduated and been working and making payments on time for years. To call such a loan without reviewing the financials of the surviving signer would be obnoxious, to say the least.</p>
<p>We had to file for bankruptcy a year ago after my husband lost his job (long,complicated, sad story). Our daughter was never contacted by the holder of the co-signed loans.</p>
<p>Before that, we tried to get husband’s name off of loans, because the original lender had a policy that after 2 years of on-time payments the co-signer could be dropped. Unfortunately, during the time that the original lender was selling the loan to a new holder, a payment was not transferred on time from old lender to new holder. That prevented him from being removed from the loan.</p>
<p>KKmama, you should have listed the creditor on your bankruptcy petition. You can’t discharge it, but you are still required to list it. If you did, then it was the bank’s option to accelerate the debt IF that was a clause in your DD’s note. Not all creditors include it. I think most likely your lender missed the notification or, since the loan wasn’t in default and wasn’t discharged, just decided to live with the bankruptcy. Some banks and lenders actually like the recently bankrupt as debtors as they have much less debt after bankruptcy and are therefore more likely to pay the few creditors they have remaining (usually mortgages and other secured debt); you were a better credit risk after the bankruptcy.</p>
<p>@Consolation, the terms of the note are set when the loan is made and at that point they don’t if or when the co-signer may die, if the borrow will graduate. If they want to protect the security for the note and make a claim on the co-signer’s estate, they have to accelerate and call the note due.</p>