Have a Cosigner on Your Student Loan? You Might Find Yourself Defaulting

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studentloancosignerWhen I went off to grad school, I needed a cosigner for my private student loan. My in-laws stepped in, and everything was taken care of. I haven’t missed a payment in the years since, and the debt will be paid off soon. However, if something were to happen to my father-in-law, who cosigned on the loan, it might end up in auto-default — and the lender could demand every penny back at once.

For me, this wouldn’t be such a big deal. The loan was relatively small anyway, only meant to bridge my grad school funding gap. I could get the money together without too much trouble. But other borrowers aren’t so lucky. According to The Huffington Post, some borrowers are finding themselves in hot water when their cosigners die.

Auto-Defaults on Student Loans

If you read the fine print on some student loans, you discover that, if you have a cosigner, and that cosigner dies or goes bankrupt, you will be asked to repay the entire amount immediately. Lenders say it’s because it’s the cosigner’s financial situation that the loan was based on, so without the cosigner around to take care of it in the case of a problem, they want to call the entire loan due.

The Huffington Post reports anecdotes of those who have been paying on time for years, are now finding their finances on the brink of disaster as lenders call in tens of thousands of dollars that they can’t pay. All of a sudden, due to the death of a loved one, they are facing financial ruin. Lenders are rushing to defend themselves, but the CFPB is looking into the practice, and considering whether or not it could be considered predatory.