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?
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
|Lender||Variable APR||Eligible Degrees|
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1 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 3.89% APR (with Auto Pay) to 6.97% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.30% 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 Month/Day/Year, 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 08/21/18. 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@example.com, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 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.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
APR stands for “Annual Percentage Rate.” Rates listed include a 0.25% EFT discount, for automatic payments made from a checking or savings account. Interest rates as of 11/8/2018. Rates subject to change.
Variable rate options consist of a range from 3.27% per year to 6.09% per year for a 5-year term, 4.64% per year to 6.14% per year for a 7-year term, 4.69% per year to 6.19% per year for a 10-year term, 4.94% per year to 6.44% per year for a 15-year term, or 5.19% per year to 6.69% per year for a 20-year term, with no origination fees. APR is subject to increase after consummation. The variable interest rate will change on the first day of every month (“Change Date”) if the Current Index changes. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes. The variable interest rates are calculated by adding a margin ranging from 0.98% to 3.80% for the 5-year term loan, 2.35% to 3.85% for the 7-year term loan, 2.40% to 3.90% for the 10-year term loan, 2.65% to 4.15% for the 15-year term loan, and 2.90% to 4.40% for the 20-year term loan, respectively, to the 1-month LIBOR index published on the 25th day of each month immediately preceding each “Change Date,” as defined above, rounded to two decimal places, with no origination fees. If the 25th day of the month is not a business day or is a US federal holiday, the reference date will be the most recent date preceding the 25th day of the month that is a business day. The monthly payment for a sample $10,000 loan at a range of 3.27% per year to 6.09% per year for a 5-year term would be from $180.89 to $193.75. The monthly payment for a sample $10,000 loan at a range of 4.64% per year to 6.14% per year for a 7-year term would be from $139.65 to $146.76. The monthly payment for a sample $10,000 loan at a range of 4.69% per year to 6.19% per year for a 10-year term would be from $104.56 to $111.98. The monthly payment for a sample $10,000 loan at a range of 4.94% per year to 6.44% per year for a 15-year term would be from $78.77 to $86.78. The monthly payment for a sample $10,000 loan at a range of 5.19% per year to 6.69% per year for a 20-year term would be from $67.05 to $75.68.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
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 2.28% effective October 10, 2018.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.47% – 6.99%3||Undergrad & Graduate|
|2.47% – 6.30%1||Undergrad & Graduate|
|2.51% – 8.09%4||Undergrad & Graduate|
|3.02% – 6.44%2||Undergrad & Graduate|
|2.69% – 7.21%5||Undergrad & Graduate|
|2.79% – 8.39%6||Undergrad & Graduate|