Some student loan borrowers have reported to federal consumer protection officials that their private lenders automatically placed them in default when their cosigner died or filed for bankruptcy, even when the borrowers were otherwise paying the loan on time.
The Consumer Financial Protection Bureau highlighted that issue on Wednesday in a report analyzing the more than 2,300 complaints it had received about private student loan companies from the beginning of last October through the end of March. (The volume of complaints was up by more than one-third compared to the same period last year).
The issue is that some private student loans contain terms allowing lenders to demand the full outstanding amount of a loan when a borrower’s cosigner — often a parent or grandparent — dies or files for bankruptcy protection, according to Rohit Chopra, the CFPB’s student loan ombudsman who authored the report.