Most private student loans require the borrower to have a co-signer -- some credit-worthy adult willing to put his name and money on the line for someone with no income of his own and no repayment history. It's always risky to be a co-signer. And now the risk is even greater, and not just from the borrower's potential default.
Why? Because the extra debt from those college loans, especially if you have multiple children, distorts your debt-to-income ratios, and a high debt-to-income ratio can mean the difference between a rejection and an approval on something like a new or refinanced mortgage application.
And then there is the whole issue raised by the Christopher Bryski case, which we discussed yesterday. The family was saddled with $50,000 in student loan debt after the death of the primary borrower, because the boy's father had co-signed the loans.
It's not unusual for debt to survive death, and there is no argument that it is legal for a lender to seek repayment from a co-signer. But should they? And if asking for repayment is the standard operating procedure, then shouldn't student loan lenders at least offer the option of credit life insurance on the debt?
There are a few takeaways here.
Think carefully about agreeing to co-sign a student loan.
Consider purchasing a term life insurance policy on the primary borrower to cover the outstanding principal and interest on the student loan. The cost of a $25,000 to $50,000 policy on healthy 18- to 23-year-old college students is minimal –- averaging around $100 to $125 a year.
When you compare student loan lenders, make sure you compare both the annual percentage rate as well as the applicable co-signer release policy. To get you started, here's a sampling of student loan lenders, recent rates, and co-signer release policies. But be aware that policies change frequently, so always verify the current ones before completing any new loan application, even with a lender you previously used.
Table 1: Co-Signer Release Policies at Select Student Loan Issuers
Yes, after 36 consecutive months of on-time principal and interest payments or in the event of the student borrower's death or total and permanent disability.
It depends. You can apply for a co-signer release after 48 consecutive months of on-time principal and interest payments but only if your loan application was originated before Feb. 1, 2012. If the application was originated this February or later – no.
I think that the life insurance option should be provided for every loan too many do not understand the implications of what they are signing when they get any type of loan. They should specifically have to decline it; it would save everyone a lot of heartache and a lot of money.
Look @Tenacious, if you question the data please refer me to a site you like. I don't care where the facts are posted as long as they are facts. If you find an error let us know.
Two days ago I said cosigners should have the brains to take out life insurance on the cosignee before signing.
Does that make the facts presented incorrect, or just inconvenient. I made no comment and have no criticism if a bank wants to release a cosigner, that's up to them.
Yeah @Scott, I read all of your posts on this subject. If you read mine you would not accuse me of suggesting that education be cut and defense be expanded. I have said that all government spending must be reduced by at least the waste.
If you think education should be excluded from the cuts then we have a source of disagreement. I think raising taxes to continue the waste and stealing in all aspects of government is ridiculous. If you don't want to discuss education, how about health care. Do you think taxpayers should pay for the same blood tests taken by six doctors in six months? I don't and yet medicare pays for it. It also paid 30 doctors in Florida around $25 million for fraudulent charges.
All I have read from those in this thread is that we should help the parents pay for their kids' college. I have not read a single word about getting parents active in stopping the waste and fraud in education so the tuitions will be lower. Your answer is tax more, mine is tax enough to pay legitimate expenses, not ever increasing expenses due to fraud, waste and campaign funds.
You talk about media with an agenda-- that site is run by a man who identifies himself as a "writer and conservative."
I don't care whether someone is conservative or liberal, but it does make me think twice about their data -- if they are so fanatical that they label themselves one or another,
How the hell does any of your comments, Fred, relate to cosigners being released from loans, which is the subject of this post? And how can you protest cosigners being released from a loan once the primary borrower is deemed fit to have full responsibility for the debt?
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