Do You Have a Private Student Loan? Watch Out for “Auto Default”


The Consumer Financial Protection Bureau recently alerted consumers to the fact that some students are being placed in default when the co-signer of their private student loans dies or declares bankruptcy.

Consequently, these automatic defaults place borrowers in a position where they must repay their loan in full or risk destroying their credit.

This is a surprise for many student borrowers, who often don’t realize that private loans tend to have higher interest rates and less protection than federal loans.

The Consumer Financial Protection Bureau highlighted problems that have arisen with private student loans that have a co-signer.

One of the major complaints about private student loans that have been submitted to the CFPB is the auto default feature that takes effect after the death or bankruptcy of a co-signer. This occurs even if the loan was being paid on time.

The CFPB is urging lenders to offer an alternative to the auto default. One suggestion is to allow the borrower sufficient time to find another co-signer.


×