Life can be full of ups and downs, hard times, and surprises. One tragic case is when a family member passes away. Unpleasant for most of us to think about, but bear with me.
Aside from the deep sense of loss, you would also be left dealing with a myriad of legal and financial ramifications. This can range from setting up forwarding addresses and canceling subscriptions, to things like selling property and settling disputes over a will.
Now imagine that while you’re dealing with all of this, you receive a notice about your student loans. They’re probably the last thing on your mind. But you find out you’re suddenly in default with the full loan balance due immediately. This is despite consistent, on-time payments.
This is something that could’ve been potentially prevented. One possible solution: cosigner release.
So when would you want to pursue cosigner release for student loans? Read on to find out.
The issue with cosigners
A cosigner is someone other than the primary borrower of a loan who signs onto financial responsibility for the loan. This helps the primary borrower acquire a lower interest rate. By doing this, a cosigner is attaching their credit to the loan, which puts their financial reputation (including their credit) in the hands of the borrower.
If the borrower fails to keep up on payments, this can negatively affect both the primary borrower’s and the cosigner’s credit. What’s more, if either the primary borrower or cosigner becomes somehow unable to pay back their loans by means of injury or death, the loan then becomes the legal responsibility of the other borrower.
But it’s not just cosigners who are at risk. Borrowers could be headed for trouble and an unpleasant surprise too — which makes the case for cosigner release for helping both parties.
According to the most recent report by Consumer Financial Protection Bureau (CFPB) from 2014, private student loan borrowers are finding out they are in default on their loans after the death of their cosigner.
As if dealing with the death of a loved one isn’t hard enough, having your loans go straight to default is salt on the wound.
The CFPB report states:
“Since accepting complaints on private student loans, we continue to receive reports from borrowers discovering that they are in default, when their co-signer, often a parent or grandparent, dies. Some consumers assume that death of a co-signer will result in a release of the co-signer’s obligation to repay. Consumers describe their confusion when they receive notices to pay in full since they believed their loan to be in good standing and current.”
This situation can come as a shock to borrowers who have a positive repayment history and suddenly find themselves in default. Default typically occurs when borrowers fail to make a payment for 270 days. But with private student loans, the death of a cosigner can trigger “auto-default.”
The point is that cosigning is a risk that is taken not only by the cosigner, but by the borrower as well. If either one should pass away, the other becomes solely responsible for the loan.
What are your options?
The picture I painted isn’t very pretty, right? But as a borrower, it’s important to inform yourself about what’s going on in the student loan arena and know your rights.
If you have a cosigner for your private loans, here are some steps to get started with student loan cosigner release.
Step 1: Contact your lender
The first step is to get in touch with your lender and ask about cosigner release. Luckily, the CFPB has your back and has crafted these nifty sample letters that you can use to communicate with your lender.
One of the letters is for inquiring about the process of cosigner release, while the other is for the cosigner, like parents, who are looking to be removed from the loan.
You can edit the letters as you wish and send them via email or snail mail to your lender. The most important thing is to get everything in writing so that you are clear on the process as well as the requirements for cosigner release.
Step 2: Gather your paperwork and review requirements
Many lenders will have specific requirements in order to get a cosigner released. Often this can be in the form of consecutive on-time payments, proof of income, proof of graduation, and creditworthiness. Make sure you get your paperwork in order, such as pay stubs, cosigner release forms, etc. Be sure to make copies for yourself as well!
Private student loan giant, Sallie Mae, has a list of requirements that borrowers need to meet to pursue cosigner release — including proof of income, a credit review, and more.
Step 3: Apply for student loan cosigner release
After contacting your lender and gathering your information, it’s time to apply for cosigner release. Send in your documentation via certified mail or via email and keep any communication from your lender. You should hear a response within several weeks — and if you don’t, follow up!
It’s key that you follow up, as many lenders don’t make it easy to access this information or don’t advertise cosigner release as an option at all.
Once you complete the process of getting your cosigner released, be sure to keep any documentation related to the process for your records to help you avoid any issues down the line.
Although cosigner release is something you should look into, I’d be remiss if I didn’t share some of the struggles borrowers deal with when actually trying to get their cosigner released.
“Borrowers have submitted complaints to the CFPB about problems releasing cosigner, even though the benefit was prominently advertised prior to the origination of the loan,” according to the CFPB report from above.
Optional: Release cosigners through student loan refinancing
Another option for obtaining cosigner release is to refinance your loans through another bank. In addition to getting a cosigner removed from your loans, you may be able to reduce interest rates and save money on your loan repayment too. See our post on student loan refinancing to learn more about this cosigner release option.
While cosigner release may be a frustrating process of red tape and bureaucracy, it could save you from unnecessary trouble down the line.
Have you dealt with cosigner release? What was your experience?
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1 Important Disclosures for Splash Financial.
Splash Financial Disclosures
Splash Financial loans are available through arrangements with lending partners. Your loan application will be submitted to the lending partner and be evaluated at their sole discretion. For loans where a credit union is the lender, or a purchaser of the loan, in order to refinance your loans, you will need to become a credit union member.
The Splash Student Loan Refinance Program is not offered or endorsed by any college or university. Neither Splash Financial nor the lending partner are affiliated with or endorse any college or university listed on this website.
You should review the benefits of your federal student loan; it may offer specific benefits that a private refinance/consolidation loan may not offer. If you work in the public sector, are in the military or taking advantage of a federal department of relief program, such as income based repayment or public service forgiveness, you may not want to refinance, as these benefits do not transfer to private refinance/consolidation loans.
Splash Financial and our lending partners reserve the right to modify or discontinue products and benefits at any time without notice. To qualify, a borrower must be a U.S. citizen and meet our lending partner’s underwriting requirements. Lowest rates are reserved for the highest qualified borrowers. This information is current as of May 1, 2020.
Fixed APR: Annual Percentage Rate [APR] is the cost of credit calculating the interest rate, loan amount, repayment term and the timing of payments. Fixed Rate options range from 2.88% (without autopay) to 7.27% (without autopay) and will vary based on application terms, level of degree and presence of a co-signer. Rates are subject to change without notice. Fixed rate options without an autopay discount consist of a range from 2.88% per year to 6.21% per year for a 5-year term, 3.40% per year to 6.25% per year for a 7-year term, 3.45% to 5.08% for a 8-year term, 3.89% per year to 6.65% per year for a 10-year term, 4.18% per year to 5.11% per year for a 12-year term, 4.20% per year to 7.05% per year for a 15-year term, or 4.51% per year to 7.27% per year for a 20-year term, with no origination fees. The fixed interest rate will apply until the loan is paid in full (whether before or after default, and whether before or after the scheduled maturity date of the loan).
Variable APR: Annual Percentage Rate [APR] is the cost of credit calculating the interest rate, loan amount, repayment term and the timing of payments. Variable rate options range from 1.99% (with autopay) to 7.10% (without autopay) and will vary based on application terms, level of degree and presence of a co-signer. Our lowest rate option is shown with a 0.25% autopay discount. Our highest rate option does not include an autopay discount. The variable rates are based on the Variable rate index, is based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of April 27, 2020, the one-month LIBOR rate is 0.43763%. The interest rate on a variable rate loan is comprised of an index and margin added together. The margin is a fixed amount (disclosed at the time of your loan application) added each month to the index to determine the next month’s variable rate. Variable rate options without an autopay discount consist of a range from 2.01% per year to 6.30% per year for a 5-year term, 4.00% per year to 6.35% per year for a 7-year term, 2.09% per year to 3.92% per year for a 8-year term, 4.25% per year to 6.40% per year for a 10-year term, 2.67% per year to 4.56% per year for a 12-year term, 3.44% per year to 6.65% per year for a 15-year term, 4.75% per year to 6.93% per year for a 20-year term, or 5.14% per year to 7.10% for a 25-year term, with no origination fees. APR is subject to increase after consummation. Variable interest rates will fluctuate over the term of the borrower’s loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree earned and presence of a co-signer. The maximum variable rate may be between 9.00% and 16.00%, depending on loan term. The floor rate may be between 0.54% and 4.21%, depending on loan term. These rates are subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
As used throughout these Terms & Conditions, the term “Lender” refers to KeyBank National Association and its affiliates, agents, guaranty insurers, investors, assigns, and successors in interest.
Assumptions: Repayment examples above assume a loan amount of $10,000 with repayment beginning immediately following disbursement. Repayment examples do not include the 0.25% AutoPay Discount.
Annual Percentage Rate (“APR”): This term represents the actual cost of financing to the borrower over the life of the loan expressed as a yearly rate.
Interest Rate: A simple annual rate that is applied to an unpaid balance.
Variable Rates: The current index for variable rate loans is derived from the one-month London Interbank Offered Rate (“LIBOR”) and changes in the LIBOR index may cause your monthly payment to increase. Borrowers who take out a term of 5, 7, or 10 years will have a maximum interest rate of 9%, those who take out a 15 or 20-year variable loan will have a maximum interest rate of 10%.
KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.
This information is current as of June 23, 2020. Information and rates are subject to change without notice.
3 Important Disclosures for SoFi.
4 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 2.98% APR (with Auto Pay) to 5.79% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 5.64% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of July 31, 2020, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 7/31/2020. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at [email protected], or call 888-601-2801 for more information on our student loan refinance product.
© 2020 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 0.18% effective July 10, 2020.