RSSStudent loan co-signer issues are the focus of the latest midyear report from the Consumer Financial Protection Bureau’s Student Loan Ombudsman Rohit Chopra.
Although the majority of the estimated $1.2 trillion of student loans are federal, the CFPB report focuses on complaints about private loans, which typically require a co-signer. More than 90 percent of new private student loans are co-signed, according to a 2012 report from the CFPB and the Department of Education.
Despite widespread advertisement of the benefit, many borrowers face “bureaucratic barriers” in obtaining co-signer release, the CFPB said. Generally, creditors advertise that release of a co-signer is available after a certain period, often a designated number of on-time payments, the bureau said.
Main areas of concern according to the report were auto-defaults when a co-signer dies, auto-defaults when a co-signer enters bankruptcy, and obstacles to releasing co-signers from the loan.
Chopra urged private lenders to review possible alternatives prior to placing a loan in default upon the death or bankruptcy of a co-signer. Doing so “on a loan that is otherwise performing warrants review by investors and senior management,” he said.
The report analyzes more than 2,300 private student loan complaints and more than 1,300 debt collection complaints related to student loan debt submitted between October 1, 2013, and March 31, 2014.
The bureau also issued a consumer advisory to borrowers about how to release their co-signers from their loans and a pair of sample letters borrowers or co-signers can use to seek co-signer release.
“Students often rely on parents or grandparents to co-sign their private student loans to achieve the dream of higher education. When tragedy triggers an automatic default, responsible borrowers are thrown into financial distress with demands of immediate repayment,” said CFPB Director Richard Cordray in a press release. “Lenders should have clear and accessible processes in place to enable borrowers to release co-signers from loans. A borrower should not have to go through an obstacle course.”
