It’s a sad situation that does happen from time to time: A student loan cosigner can die unexpectedly, leaving the student to wonder what will happen to them. While the grieving process can be difficult when it comes to losing someone you care about, there are very important financial ramifications that need to be considered as well.
You have some important homework to do to understand what happens next. When reviewing your loan documents, you may find the need to take action quickly to protect your finances and credit in the event of a student loan cosigner death.
What to do if your student loan cosigner dies
Review your student loan documentation
The worst thing you can do is ignore the situation. Within a few days of the bad news, dig out your student loan documents so you can review the legal implications of the death. If you can’t find the documents, log into the lender website to see if you can find documentation there.
Once you find your documents, looks for any paragraph that mentions cosigners or death of one of the parties. In many cases, you will find that if your cosigner dies, things will go on as they did before. 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 entire loan balance is due immediately. Or, you could enter something known as an “automatic default,” which is a huge blow to your finances and credit.
If you look at your other credit cards and loans, you might find that defaulting on one loan causes other loans to go into default or come due. This can cause such damage to your credit that you may need a decade or more to recover.
If you have an automatic default provision, look to refinance the loans immediately. 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 contractually obligated to inform the bank immediately. Ignoring that may put you in breach of contract. That 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 are obligated to inform the bank, doing so is generally in your best interest. In many cases, they will just update the loan documentation and list you as the sole responsible party. However, all cases are not that simple.
Some banks scan public death records, automatically match names, and place loans into default. Others exercise more discretion and look at things on a case-by-case basis. If your loan falls into the latter category, you may be able to have the bank release the deceased party from the loan, and everything will go on normally 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 bank 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 every month, your credit score has likely improved, which will help you when refinancing.
The good news is lenders can see the on-time payment history on your credit report. This usually creates a positive impact their decision.
When you refinance, your old loan is paid off and replaced with a new loan at a new bank. There are generally some closing fees for doing this, but if it can help you avoid a default, those fees are completely worthwhile.
What happens to your cosigner if you die?
Let’s flip the perspective for a moment. What happens to your student loans if you pass away and you have a cosigner?
If you have federal student loans only, the loans are discharged and no one owes another dime. Although student loans are notoriously difficult to discharge through bankruptcy or any other means, federal student loans are discharged with the death of the student loan borrower.
Private student loans are another story. Some private student loan lenders do discharge a loan after the borrower passes away. 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 pass away.
If you are married and have private student loans, the lender could go after your spouse for the remaining balance. However, that is typically only the case if you took on the loans after you were already married.
After student loan cosigner 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 take the steps needed to protect your financial future.
Interested in refinancing student loans?Here are the top 6 lenders of 2019!
|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 7.89% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.97% 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 firstname.lastname@example.org, 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
|2.57% – 6.97%1||Undergrad & Graduate|
|2.47% – 6.99%3||Undergrad & Graduate|
|2.68% – 8.77%4||Undergrad & Graduate|
|3.24% – 6.66%2||Undergrad & Graduate|
|2.61% – 7.35%5||Undergrad & Graduate|
|3.01% – 9.75%6||Undergrad & Graduate|