NEW YORK (MainStreet) — Cosigners of private student loans that want to get free from these obligations aren’t getting help from the lenders, according to a report released last week by the Consumer Financial Protection Bureau's Student Loan Ombudsman.
Most private student loans require a co-signer. This became more common after the 2008 financial crisis. By 2011, the CFPB said that the percentage of co-signed private loans hit 90% with most co-signers being a parent or grandparent. The CFPB found that 90% was also the rate of co-signer release rejection. When student borrowers and co-signers seek a co-signer release but don’t get it, the co-signer’s credit can be impaired.
Ideally, lenders set can co-signers free from this obligation once the borrower is ready to make scheduled payments on the loan. But the CFPB found standard practices that thwart co-signer release.
“Parents and grandparents put their financial futures on the line by co-signing private student loans to help family members achieve the dream of higher education,” said CFPB Director Richard Cordray. “Responsible borrowers and their co-signers should have clear information and standards for releasing the co-signer if the time is right. We’re concerned that the broken co-signer release process is leaving responsible consumers at risk of damaged credit or auto-default distress.”