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Death of a co-signer

Posted by Andrew Chan  January 3, 2009 04:00 PM

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My elderly grandfather is a cosigner for my $25,000 student loan and I am worried about how this might affect his modest estate after he dies. I plan on paying off the loan when the time comes and I assume I will not be in default when he dies. But what if I default after he dies? How long after his death are my grandfather and his estate on the hook? I don't want my mom, uncles and aunts to be burdened with the specter of this cosigned loan.

Good question! Unfortunately, there is not a single universal answer to this. Similar to when a borrower dies, it generally depends on the type of loan or loan program, the guarantor or lender, and the specific terms of the loan. As the economy tightens and lending standards increase, borrowers are increasingly turning to other options to improve the chances of successfully securing a loan. One option has been to seek someone to co-sign the loan. Often this means asking a family member, a relative or a close friend to assist. Although a co-signer may not have primary responsibility for the repayment of the loan, their obligations (or their estate’s obligations) may continue after death.

Intuitively, it seems reasonable that the death of a co-signer (prior to any default) should result in the discharge of the co-signer’s obligations to that loan. In some cases this is true. However, in certain cases the loan agreement may specify that the loan becomes payable upon the death of either the borrower or the co-signer. This would force the borrower to either repay or renegotiate the loan. Furthermore, if the loan is payable upon the death of the co-signer, the co-signer’s estate my bear some responsibility for the repayment if the borrower cannot fully repay the loan. To be sure, you should check with your lender and review the specific terms of your loan agreement. Your school’s financial aid office may also be able to provide you with some guidance.

If your grandfather’s estate is responsible for repayment of the loan it may be limited. There may be a statue of limitations in terms of when a claim against an estate must be made. These limitations often depend on the type of the debt as well as the laws within your particular state. Depending on your grandfather’s financial situation, it may make sense to discuss this with a legal professional.

One option may be to try to restructure this loan to eventually remove your grandfather as the co-signer. Your grandfather’s obligations for this loan will be mitigated as it becomes more financially manageable for you to take on this loan in your own name.

To learn more about the co-signer’s obligations read the blog posted by my fellow blogger, Cheryl Costa (http://www.boston.com/business/personalfinance/managingyourmoney/archives/2008/08/cosigning_loans_5.html).

This blog is not written or edited by Boston.com or the Boston Globe.
The author is solely responsible for the content.

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ABOUT MANAGING YOUR MONEY
Local finance professionals share insights and advice on issues such as budgeting, managing debt, and retirement planning.

About the contributors

D. Abraham Ringer is a CERTIFIED FINANCIAL PLANNER practitioner and a Financial Adviser with Morgan Stanley Global Wealth Management in Boston. He is registered in MA, NH, NY and several other states to which his articles are directed. For more information please visit www.morganstanleyfa.com/ringer
Financial Planning Association™ of Massachusetts has 900 members who specialize in the financial planning process. Many of its members engage in philanthropic pro bono work in their communities, recommend legislation, elevate public awareness, promote financial literacy, and advocate for sound economic and tax policies.
Odysseas Papadimitriou is the founder of CardHub.com, a credit card and gift card marketplace, and WalletHub.com, a personal finance site. He has more than 13 years of experience in the personal finance industry, and previously served as senior director at Capital One.

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