by M. Catherine Wilcox
The Consumer Financial Protection Bureau (CFPB) recently released a report on student loan complaints. Specifically, the report highlights complaints concerning co-signer issues on student loans. Many private student lenders advertised that their loans contained an option to release a borrower’s co-signer after a certain period of on-time payments. The complaints describe the bureaucratic obstacles borrowers are facing when seeking to obtain these releases. In addition, complaints reveal that borrowers often have to apply for a release but they are generally not provided with the criteria for co-signer release from the lenders and servicers.
To address this issue, the CFPB has issued a consumer advisory and drafted sample letters for borrowers and their co-signers to use in applying for releases. The sample letters include one for a borrower's application to release a co-signer and the other for a co-signer's application to release a co-signer.
The report also discussed auto-defaults in private student lending. Many private student loan contracts contain provisions that permit the lender or servicer to place a loan in default and accelerate the full balance of the loan upon the death or bankruptcy filing of a co-signer, even if the loan is in good standing. The report describes potential alternatives to auto-defaults, including assessing the borrower for co-signer release and maintaining the existing pay schedule, providing the opportunity to identify a new co-signer, or providing time to refinance the loan.
Read more articles about the Consumer Financial Protection Bureau at Dykema’s CFPB Blog
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