What Happens if Your Private Student Loan Co-signer Dies? The lender’s policies determine what happens if your private student loan cosigner dies. Some lenders may automatically default on the loan, asking for the remaining balance to be paid immediately, even if the borrower has been making payments.
This might be a financial strain, especially if the borrower does not have the money to pay the full debt. Some lenders include a death discharge feature, which absolves the cosigner of their loan liability in the event of the borrower’s death.
Your cosigner is most likely someone dear to you, and you should spend your time dealing with bereavement rather than your student loan. Unfortunately, when a cosigner dies, the situation can become difficult. Here are some suggestions for what to do if you find yourself in this difficult scenario. This article examines what Happens if Your Private Student Loan Co-signer Dies.
What Happens if Your Private Student Loan Co-signer Dies
While your student loans may not be affected, an unexpected default is possible. The following three steps will help you keep your student loans in good standing:
Review your Student Loan Documentation
The first thing you should do is study your loan’s terms. Certain private student loans demand notification of death, while others do not. If you are obligated to notify the lender that a cosigner has died. The information should be found in your loan’s terms and conditions.
Each lender and loan agreement is unique, so you won’t know what your responsibilities are until you look over your documents. In some situations, you may be able to continue with the loan without a cosigner. In others, you may face auto-default.
What is Auto Default?
An automatic default clause is sometimes included in student loan agreements, which causes your loans to default if your cosigner dies. This occurs automatically, regardless of your previous payment history or present financial situation.
Once in default, the lender can pursue you for repayment and may even seek payment from the cosigner’s estate. Unless you can pay the bill in full, this default will most certainly influence your credit score. This makes it difficult to get credit cards, car loans, or mortgages in the future. If you have an automatic default clause, you should consider refinancing the loans right away (more on that later).
Alternatively, if a cosigner is terminally sick, you may want to research this information ahead of time. You may need to make changes to your loan while the student loan cosigner is still living, such as filing for cosigner release.
While most large lenders no longer use automatic default. It’s still vital to read your student loan agreement carefully to be aware of the handful that do.
Inform your lender if required
Examine your student loan documents to confirm if you must alert your lender when a cosigner dies. Still, it’s worth checking to see whether your lender has specified any activities you must do to maintain good standing.
If your lender can remove your cosigner’s name from the account and list you as the sole responsible party, it may be worth advising them of the situation. However, if there is no obvious benefit to notifying your lender, you may be better off keeping this information to yourself.
Consider Refinancing Your Student Loan
If your cosigner dies and your loan contains an auto-default clause, refinancing with a different lender before the default occurs might be a viable option. Refinancing is taking out another loan to pay off your current one, usually at a reduced interest rate, which will save you money throughout the loan. The process can take as little as a few days. So you can complete it either before your lender learns of your cosigner’s death or before the default occurs.
This is how the refinancing process works.
Shop for interest rates
Loan refinancing businesses will usually provide you an estimate of the rates you could be offered without having a thorough credit check. This means they will check your credit score without placing an inquiry on your credit record.
Determine whether you need another cosigner
The rate-shopping process will help you determine if you can apply for a refinance on your own. Or if you need to locate a cosigner to qualify. If you’re informed you need a cosigner, take a step back and think about whom you can ask for support before pressing forward with the application.
Choose a Lender
After you’ve shopped for rates, analyze the advantages and disadvantages of each lender as well as the payback conditions to determine which firm is ideal for you. For example, Earnest allows borrowers in good standing to seek a payment skip once a year if an unexpected expense arises. Extras like these could be the difference between two companies with otherwise similar terms.
Find your 10-day payout amount
The 10-day payoff amount is the exact amount of principal and interest required to bring your loan down to zero within 10 days. You’ll offer this number to your new loan business. And it will decide how much you need to borrow to pay off the loans in full.
Select your Loan Terms
Some firms, such as Earnest, will allow you to select your monthly student loan payback from a sliding scale based on interest rates and loan length. 3 You can decide what works best for your personal finances.
Begin making payments on your new loan
Once your old debts are paid off, you can begin making payments on your new one to ensure you stay in good standing.
Refinance later to get better interest rates
After a year or two of regular payments, you may be able to refinance for a reduced interest rate, with or without a cosigner. This could result in even greater savings in interest over time.
What if there’s no Auto-Default Clause?
If you’ve examined your loan papers and there’s no auto-default clause that kicks in when your cosigner dies, nothing should change with the loan. Your payments, as well as rates and terms, should be consistent. The only difference is that the lender will no longer have someone to retrieve the loan from if you are unable to repay it.
But that is not your problem; it is theirs. If nothing in the documentation specifies that your loan would go into auto-default, you can continue paying it back in the same way you did when your cosigner was living.
Frequently Asked Questions
What if you cosign for someone and they do not pay?
If the borrower fails to pay or defaults on his or her repayment obligations. The lender may take legal action against you, pursue you through debt collection agencies, or sell the debt to a “debt buyer” in order to collect the money owing on the loan.
Can you take a cosigner off a private student loan?
A co-signer can only be removed once the borrower has made a certain number of on-time payments on a private student loan and meets other requirements.
Why is being a cosigner so risky?
Acting as a cosigner might have major financial implications. First, cosigners accept legal responsibility for a loan. If the principal borrower is unable to make the agreed-upon payments, the co-signer may be required to pay the entire amount outstanding. Second, a co-signed loan will be recorded on the co-signer’s credit records.