NEWS: death of co-signer can lead to repayment shock

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The Consumer Financial Protection Bureau (CSFB) is reporting that demands for full repayment of a some co-signed private student loans can be triggered by the death of the co-signer.

Most students applying for credithave little income and no credit history. It’s therefore very common for any student loans to be co-signed by a relative.If this relative or friend dies (or is declared bankrupt) mechanisms may kick into place to demand full repayment. This can significantly damage the student’s credit score – at a time when grief is often the overwhelming emotion. Such provisions are usually buried in the small-print of the loans agreement, and are often overlooked by people signing for them.Rohit Chopra, ombudsman of the CSFB said that there is a way to avoid this sort of shock.

“If you are a co-signer or have a student loan with a co-signer and you are in repayment, you should look into what’s called ‘co-signer release’.

“You should consider this option to avoid a surprise default,” said Chopra.

Samples of co-signer release letters are available on the CSFB website.Repayment shock does not apply to federal student loans.

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