Borrowing money can enable consumers to invest in cars, homes or education, but lenders are often wary of lending large sums of money to young borrowers with short credit histories. In this case, the lender may require a loan cosigner, who agrees to pay back the debt if the primary borrower fails to pay. The death of a primary borrower or cosigner can affect student loans or other debts.
Basics of Loan Cosigning
When someone cosigns a loan, he guarantees that the loan will be repaid regardless of whether the primary borrower fulfills the obligation. When a borrower adds a cosigner to her loan, it reduces the chance that the loan will go unpaid, because the lender can collect money from the primary borrower or the cosigner.
Death of a Cosigner
If the cosigner of a student loan or other debt dies, the primary borrower is still generally required to pay off the debt. A cosigner acts as a fail-safe for a lender in case a risky primary borrower doesn't pay what he owes. The death of a cosigner eliminates the fail-safe, but the primary borrower is still liable for the debt. If, however, someone else took out a loan on your behalf and you are not the primary borrower, you might not be liable for the debt in the event of her death.
Death of a Primary Borrower
When a primary borrower dies, loan cosigners may or may not be liable to pay back the debt. According to Cheryl Costa of the Boston Globe, most student loans have a provision that discharges or cancels debt if the original borrower dies. In addition, loans might be discharged if the primary borrower becomes permanently disabled. Some loans, however, may still require the cosigner to pay in the event of the primary borrower's death or disablement.
Considerations
Since the liability for debts after death can vary from one loan to another, it is essential to read all the terms of a loan carefully before accepting a loan. The Federal Trade Commission warns that cosigners may end up paying for the debts of those they cosign for, and that cosigners should be sure that they have the means to pay for loans if they have to.
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