It’s a sad situation that does happen: A student loan cosigner dies unexpectedly, with a loan that has yet to be paid off completely. While the grieving process can be difficult, there are very important financial ramifications to consider as the borrower.
You have some homework to do to understand what happens next. When reviewing your loan documents after a student loan cosigner’s death, you may find you need to take action quickly to protect your finances and credit.
What to do if your student loan cosigner dies
Review your student loan documentation
What happens if your cosigner dies? The worst thing you can do is put off the situation. Within a few days, dig out your student loan documents so you can review the legal implications. If you can’t find the documents, log in to your lender’s website to see if you can find documentation there. (Help is available if you need to track down your student loan servicer.)
Once you find your documents, look for anything that mentions student loan cosigner deaths. In many cases, you will find that things remain the same if your cosigner dies. As long as you never miss a payment or come up short, nothing changes dramatically.
However, some private lenders have a clause in their contracts where the loan balance is due immediately even if your loan is current and you’ve been making on-time payments. This is known as an automatic default, which is a huge blow to your finances and credit, especially if you don’t have the means to pay off the balance right away.
If you have an automatic default provision, look to refinance the loans immediately (more on this later). Or, if a cosigner is terminally ill, look into this information ahead of time. It may be necessary for you to make changes to your loan before the student loan cosigner dies.
Inform your lender if required
If your student loan cosigner dies, you may be obligated to inform your lender immediately. Ignoring that may put you in breach of contract. Since you’re liable for paying back your student loans, breaching your contract can come with legal and financial fallout, such as getting sued by the bank, or having your loan placed into the dreaded automatic default.
If you have to inform the lender, doing so is generally in your best interest. In many cases, it will update the loan documentation and list you as the sole responsible party, meaning you’re liable for your student loans. However, not all cases are that simple.
Some banks scan public death records, automatically matching names and placing loans into default. Others exercise more discretion and look at things on a case-by-case basis. If your loan isn’t placed into auto default, you may be able to have the bank release the deceased party from the loan, and everything will go on as if you were the only borrower.
Refinance your student loan
If you are facing an automatic default when your student loan cosigner dies, look into moving your loan to another lender before the default kicks in. While refinancing can take some time, you may be able to push it through quickly; just make sure you’re not moving to a loan with a higher interest rate.
If you can, try to refinance without a cosigner. If you have been making on-time payments each month, your credit score has likely improved, which will help you when refinancing.
The good news is that lenders can see the on-time payment history on your credit report. This can influence a positive impact on their decision.
When you refinance, your old loan is paid off and replaced with a new loan at a new lender. You may sign away certain benefits, such as losing out on the student loan interest tax deduction, but if it can help you avoid a default, it could be completely worthwhile.
What happens to your cosigner if you die?
Let’s flip the perspective: What happens to your student loans if you die and you had a cosigner?
If you have federal student loans, the loans are discharged — and no one owes another dime. Although student loans are notoriously difficult to discharge through bankruptcy or other means, federal student loans are discharged upon the death of a student loan borrower.
Private student loans are another story. Some private student loan lenders, such as Sallie Mae, do discharge a loan after the borrower dies. Others, however, will try to claim the remaining balance from an unmarried borrower’s estate. This can affect life insurance, inheritance and other financial transactions after you die.
If you are married and have private student loans, the lender could go after your spouse for the remaining balance. However, that is typically the case if you took on the loans after you were already married and you live in a community property state.
After a student loan cosigner’s death
It is horrible to have to go through the death of someone you care about, but ignoring the financial fallout when a student loan cosigner dies can make it much worse. Take charge and follow the steps needed to protect your financial future.
Sarah Li Cain contributed to this article
Interested in refinancing student loans?Here are the top 6 lenders of 2020!
|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 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.
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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 September 9, 2020. Information and rates are subject to change without notice.
3 Important Disclosures for SoFi.
4 Important Disclosures for Splash Financial.
Splash Financial Disclosures
Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet applicable underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers. If approved, your actual rate will be within a range of rates and will depend on a variety of factors, including term of loan, a responsible financial history, income and other factors. Refinancing or consolidating private and federal student loans may not be the right decision for everyone. Federal loans carry special benefits not available for loans made through Splash Financial, for example, public service loan forgiveness and economic hardship programs, fee waivers and rebates on the principal, which may not be accessible to you after you refinance. The rates displayed may include a 0.25% autopay discount.
The information you provide to us is an inquiry to determine whether we or our lenders can make a loan offer that meets your needs. If we or any of our lending partners has an available loan offer for you, you will be invited to submit a loan application to the lender for its review. We do not guarantee that you will receive any loan offers or that your loan application will be approved. Offers are subject to credit approval and are available only to U.S. citizens or permanent residents who meet applicable underwriting requirements. Not all borrowers will receive the lowest rates, which are available to the most qualified borrowers. Participating lenders, rates and terms are subject to change at any time without notice.
To check the rates and terms you qualify for, Splash Financial conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the lender will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
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 September 10, 2020.
5 Important Disclosures for CommonBond.
Offered terms are subject to change and state law restriction. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900), NMLS Consumer Access. 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 0.16% effective August 10, 2020.