CFPB warns about student loan cosigners
CFPB's midyear report looks at 2,300 student-loan and 1,300 debt collection complaints and lists offending servicers, none of which were credit unions.
April 23, 2014 – A CFPB report on student loan complaints shows that adding a cosigner to student loans sometimes puts borrowers at risk for surprise defaults even if payments are made on time.
The report examined the 2,300 private student loan complaints and 1,300 debt collection complaints that the agency received between Oct. 1, 2013, and March 31, 2014. The report included a list of servicers by the amount of complaints they received. No credit unions were on that list.
CFPB Assistant Director and Student Loan Ombudsman Rohit Chopra wrote, “Your cosigner is also on the hook for your loan and therefore changes in their behavior can impact your loan, causing your loan to default and making your entire balance due all at once. We’ve received complaints that private student loan servicers are placing borrowers into default when their cosigner dies or files for bankruptcy.”
Many private student loans have cosigners – usually a parent or a grandparent. To avoid surprise defaults, Chopra recommends investigating whether the loan allows a “cosigner release” after a certain number of on-time payments and a credit check. Chopra offers borrowers a sample letter asking student loan servicers about the release policy.
Last week, CFPB said interest rates on new federal student loans are expected to “jump” this summer and has updated its online “Paying for College” tool to help estimate what rates might be like after July.
"CFPB: Federal student loan rates to rise," 4/16/14