As the cost of tuition continues to rapidly increase, student loan debt has skyrocketed. Student loans now make up the nation’s second largest consumer debt market. There are more than 40 million federal and private student loan borrowers and collectively they owe a staggering $1.2 trillion.
On June 18, the Consumer Financial Protection Bureau released a new report on the private student loan industry that sheds light on some (but by no means all) of the troubling servicing practices affecting student loans. Specifically, the Bureau discussed student loans that are co-signed by other individuals who agree to pay the loan if the student borrowers cannot. Lenders have recently begun trying to profit from deaths or bankruptcies of cosigners by using these unhappy events as an excuse to declare automatic defaults on the loans – even when the student borrowers themselves were up to date on their payments and the loans were otherwise in good standing. As stated by the Bureau, “this practice may constitute a violation of the law, depending on the circumstances.”
The Bureau also reported that while lenders originally advertise the option of releasing a co-signer from their obligations after a borrower meets certain requirements, nearly 90% of applications for such a release are rejected.
As shown by the Bureau report, dealing with student loan lenders can be difficult. If you believe that a lender has engaged in an unfair practice, it may be helpful to speak to a debt attorney to see if there is recourse.