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What happens to loans when the co-signer dies?

Posted by Cheryl Costa  April 7, 2009 09:14 AM

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My father died almost a year ago now. He was the cosigner for my student loans and I was told that the loans he co-signed for me were forgiven. However, my account still shows $8000 in loans. Would the loans issued before his death be forgiven? And how do I go about getting loans in the future?

Your dad was only a co-signer on the loans. It appears from your description that you were the primary borrower so you are still responsible for re-paying the loan. (As a co-signer, your dad would only have been responsible for your debt if you were unable or unwilling to pay.) I would check with your loan issuer to be sure but I would assume that you are responsible for the debt.

If you are talking about a PLUS loan that your dad might have taken out for you, it is possible that the loan might be cancelled or discharged because he would have been the primary borrower on that type of loan. Again, you would need to review the promissory note that was signed and contact the loan provider.

For any future loans that you might apply for, you would have to apply using only your income information and hope you get approved. If you are denied a loan based on your own earnings, you may have to find another person willing to co-sign for you. These days, that might be very difficult to do. I always counsel clients to never co-sign for a loan unless they are fully prepared (and able) to pay back the loan in question. Being a co-signer can have all kinds of negative consequences. Many co-signers are not aware that their credit and credit score can be negatively impacted even if the original borrower is dutifully making all required payments. That is because the loan will still show up on the co-signers credit report. If the co-signer is hoping to be approved for a large loan for a mortgage or a car, lenders may deny the loan because the potential outstanding debt level is too high.

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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
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