A private student loan is one in which the borrowing student obtains through a private lending institution, such as a bank or credit union. If the borrower has a co-signer who later dies, the borrower is still responsible for repaying the loan, though the details of the loan agreement largely determine the repayment terms. Talk to a local attorney for advice about the impact a co-signer's death has on your private student loan.
Co-Signer
When a borrower takes out a student loan, that borrower sometimes uses a co-signer to act as a co-guarantor of the loan. If the borrower ever fails to repay the loan on time, the lender can hold the co-signer responsible for the payments. The co-signer, therefore, is responsible for all of the duties of paying back the loan and does not gain the benefit of receiving the loan funds.
Loan Terms
When a private student loan is taken out, what happens to the loan responsibilities when the co-signer dies depends upon the loan agreement. Typically, the surviving borrower is still responsible for the loan and must continue to make payments. If the borrower then fails to make the payments, the borrower is solely responsible to the lender without having the co-signer to rely upon. Because the terms of the loan often dictate what happens in the event a co-signer dies, it is important to carefully read the details of the loan.
Estates
In the event the loan agreement states that the borrowers must pay back the loan in full upon the death of either co-signer, this also raises the issue of the co-signer's estate. The estate is all of the property the co-signer owned at the time of her death. Once she dies, any creditor to whom the co-signer owed an unpaid debt can file a claim against the estate to recover the amount owed. Such claims and the process involved are dependent upon the probate laws of the state in which the co-signer lived. However, as a remaining co-signer, you may still be liable to repay the debt in this situation if the estate is unable to do so.
Other Considerations
Each student loan situation is different. Not only do the terms of the loan agreement differ, but the laws governing these loans can differ and change with new legislation. A private student loan lender may, for example, include a requirement that the deceased co-signer is liable for repaying the entire loan upon death, but it may also release the co-signer's estate from liability. In the reverse situation in which the borrower dies and the co-signer survives, the co-signer may still be responsible for repaying the loan even though he did not benefit from the loan.
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