Dive Brief:
- New data from the Consumer Financial Protection Bureau shows 90% of student loan borrowers who asked to release their co-signers from the debt are refused, even though the release option is advertised by lenders.
- The Chronicle of Higher Education reports that this refusal leaves co-signers vulnerable to credit problems of their own as the loans count toward their total debt and affect mortgage rates, credit availability, and car loans.
- The CFPB report also shows most private student loan contracts still contain clauses that put borrowers into automatic default if their co-signer dies or declares bankruptcy, an issue it raised in 2014, according to the article.
Dive Insight:
The Consumer Financial Protection Bureau submits mid-year updates based on complaints it receives relating to student loans and debt collection. Its latest analysis is based on more than 4,000 complaints and a representative sample of private student loan contracts. The report notes that lenders do not allow co-signers to be released from any loans if the borrower delays the start of repayment, but they don’t often warn borrowers of this consequence when offering forbearance. Overall, the report urges lenders to be more transparent about co-signer release policies. It also recommends lenders eliminate some of the bureaucratic barriers in place that limit access to refinancing.