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Student Loans and Co-Signing

As a debtor you have consistently been making payments each month cutting down the balance. Suddenly your cosigner dies or files for bankruptcy protection. Now, your creditor is demanding that you pay back the entire loan – despite your good faith and consistent payments.
Automatic defaults are a big problem for private student loans according to a report by the Federal Consumer Financial Protection Bureau.
More than 2,300 private student loan complaints and 1,300 debt collection complaints related to student loans submitted to the Bureau since October 1, 2013 have been analyzed.
The Bureau’s student loan authority, Rohit Chopra, explained that the agency cannot determine how many borrows are impacted by automatic defaults. The problem occurs with many loan and lender servicers.
The majority of student debt is from federal loans which typically do not require a co-signer.
Private loans have different rules than federal however. Private loans are typically more common for high-debt borrowers and they usually require a co-signer. More than 90% of private loans are cosigned and typically by a grandparent or parent.
Automatic defaults can be extremely damaging for borrowers because potential employers and landlords can check credit reports. Defaults can destroy an otherwise good credit score.
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?

Most lenders check their credit bureaus typically every month. The effects can be seen on your credit report within a short amount of time.

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

Typically lenders will promote options of having a co-signer released if the debtor has met a certain amount of consecutive on-time payments for a certain amount of time (two-years usually) and has decent credit. Lenders however have been known to change the policy even after meeting the criteria to release the co-signer. It is best to check for certain.

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

Always be sure to ask your creditor about its policy and request the moment you have met the criteria. It is good to do this in case anything happens to your co-signer. Also, co-signers can request a release for themselves.
Clearwater Debt Collection Attorney
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