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Death of a co-signer may mean sudden acceleration of student loan

Everyone knows that college today costs a lot. In fact tuition prices are at record highs in many cases, causing most students to need to take out loans to finance their education. The federal government is the most common lender for student loans, but the financing the government can provide is often not often to cover all of one’s expenses. As a result many students also turn to private sources to secure a loan for college.

Taking out a private loan of this large amount is difficult and young people without a lot of credit history often need a co-signer in order to obtain the loan. What many people do not realize when they ask a parent or friend to co-sign is that in many cases complications with their co-signer could lead to problems with their loan, even if they have been making on time payments and have no other issues. For example, when a co-signer passes away, loan providers can do what is called accelerating, which is to demand the balance of the loan due in full on the next billing cycle.

Having a large debt like that come due all at once can be a very unpleasant surprise, particularly for people who have already been struggling with high loan payments and depressed earnings. In addition to coping with the loss of a parent or other loved one, the borrower is now in a difficult financial situation.

Student loan debt is not typically something that can be discharged during a bankruptcy proceeding absent extraordinary circumstances, which this may qualify as. If the circumstances do not qualify as extraordinary, then borrowers have other options as well, such as seeking a discharge of their other debts or attempting to refinance or challenge the acceleration.

Source: New York Times, “Student Loans Can Suddenly Come Due When Co-Signers Die, a Report Finds,” Richard Perez Pena, April 22, 2014. 

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