A few years back, under pressure from the Consumer Financial Protection Bureau, private student loan lenders like Discover, Navient, Wells Fargo, Sallie Mae, and others nixed auto default clauses from their contracts.
No longer will borrowers be thrown into default when a cosigner passes away or files for bankruptcy.
Richard Hunt, President of the Consumer Bankers Association, informed the then CFPB director Richard Cordray that the ten member banks that offer student loans had changed their ways. No longer will the banks trigger a default in case of a cosigner’s death or bankruptcy.
Not only will these changes apply to new loans, but Hunt also noted that the banks would start the same policy for existing loans. “We’re committed to helping families finance higher education and want to provide private education loans with terms that are clear, fair, and responsible for both consumers and lenders,” wrote Hunt. “And we share our customers’ interest in successfully repaying their loans, even in the toughest times, like the death of a loved one.”
Related: How to Get Rid of Private Student Loans
Treatment by lender
Discover may go after the cosigner’s property if they die, but it won’t put the loan in default. Discover won’t let you release the cosigner even if on-time payments were made for several years.
Navient typically releases the cosigner if they die, and it won’t put the loan in default.
Sallie Mae releases the cosigner if they die and waives the current balance if the student borrower dies.
Wells Fargo typically releases the cosigner if they die, and it won’t put the loan in default.
Related: Wells Fargo Student Loan Forgiveness Options