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The loss of a loved one is always hard, but don’t expect any understanding from your private student loan lender.
If you had a grandparent, parent or anyone else co-sign your student loan you may be expected to pay the full loan amount at the time of their passing.
It may seem like a ridiculous request, but unfortunately it’s not illegal. The Consumer Financial Protection Bureau says lenders include clauses in their contract to cover this type of situation. However, many borrowers are unaware of such clauses at the time of signing, and after.
The CFPB is seeing an increase in complaints regarding the issue says the agency’s ombudsman, Rohit Chopra. According to Chopra the clauses are catching many borrowers by surprise, and at a time when they’re grieving and potentially facing other additional financial obligations.
This practice appears to be most common among private student loan lenders. The practice has not only affected borrowers when the co-signer passes away, but also if he or she declares bankruptcy. “We do have some concerns that with an aging population and with very long terms on certain private student loans, that this could actually increase over time,” Chopra said.