General Discussion
Related: Editorials & Other Articles, Issue Forums, Alliance Forums, Region ForumsStudent Loans Can Suddenly Come Due When Co-Signers Die
For students who borrow on the private market to pay for school, the death of a parent can come with an unexpected, added blow, a federal watchdog warns. Even borrowers who have good payment records can face sudden demands for full, early repayment of those loans, and can be forced into default.
Most people who take out loans to pay for school have minimal income or credit history, so if they borrow from banks or other private lenders, they need co-signers usually parents or other relatives. Borrowing from the federal government, the largest source of student loans, rarely requires a co-signer.
The problem, described in a report released Tuesday by the Consumer Financial Protection Bureau, arises from a little-noticed provision in private loan contracts: If the co-signer dies or files for bankruptcy, the loan holder can demand complete repayment, even if the borrowers record is spotless. If the loan is not repaid, it is declared to be in default, doing damage to a borrowers credit record that can take years to repair.
The bureau said that after a co-signers death or bankruptcy, some borrowers are placed in default without ever receiving a demand for repayment. The agency did not accuse loan companies of doing anything illegal.
more
http://www.nytimes.com/2014/04/22/us/student-loans-can-suddenly-come-due-when-co-signers-die-a-report-finds.html?smid=re-share
marmar
(77,053 posts)...... we wouldn't have an economy, apparently.
yeoman6987
(14,449 posts)The best option would be to have a term life insurance for at least the amount of student loan that is due so that it can be paid when the parent dies. You have to be smarter than "life" sometimes. I never thought to do this but this article is a reminder of what an option could be.
pipoman
(16,038 posts)Lawmakers should fix the problem. ...really very simple. ..but alas. ..
yeoman6987
(14,449 posts)Doing something for yourself will at least help your future credit score. I would never wait for a politician to fix anything. You could be waiting a long time and your financial life could be destroyed by then. I never trust politicians at all....at least not with my financial life.
surrealAmerican
(11,357 posts)It should not be in the bank's interest to to put a loan into default that is being payed off regularly. There's something missing here.