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Co-signed a private student loan? Here are tips to protect yourself during COVID-19

Read the July 22, 2020 Consumer Financial Protection Bureau blog post, "Co-signed a private student loan? Here are tips to protect yourself during COVID-19" here:

Millions of Americans are facing financial uncertainty during the coronavirus pandemic. For people with student loans, the Coronavirus Aid, Relief, and Economic Security (CARES) Act offers relief for those with federal student loans, and many private student loan lenders are providing options for reducing or suspending payments as well.

The majority of private student loans have co-signers. If you’ve co-signed a private student loan, you have a financial responsibility and legal obligation, just like the primary borrower does, to make sure the loan is being repaid. Whether or not you’re aware of the status of the loan, missed payments can hurt your credit as well as the borrower’s.

If you or the borrower have been financially impacted by the coronavirus pandemic, it’s important to work together to identify your options and to reach out to your servicer as soon as possible.

Here are steps to take to help protect yourself as a co-signer to a private student loan:

Stay up-to-date on the status of the student loan

First and foremost, it’s important to stay in regular communication with the borrower about the status of the loan. If the borrower misses monthly payments, it can impact your financial well-being during the pandemic and have long-term implications. The borrower should provide you with regular updates, and you may also be able to request account and repayment information directly from the loan servicer.

Talk to the primary borrower about requesting relief

If the borrower can’t make loan payments as a result of COVID-19, it’s important for the borrower to contact the loan servicer immediately and ask what relief options exist to pause or reduce the payments. Again, many private student loan lenders are offering options for borrowers affected by the pandemic. As a co-signer, you may not be able to request relief, but the borrower can.

When asking about forbearance or hardship relief options, it’s helpful to understand how long this period could last, whether interest or fees are included, and how monthly payments will change. Make sure you’re making an informed decision and that you’re clear on the details before you and the borrower agree to the terms.

Questions to ask private loan servicers about forbearance or hardship relief

  • Do they offer a special disaster forbearance or relief options to help borrowers affected by the COVID-19 pandemic?
  • What are the necessary steps to request forbearance or relief?
  • Are there fees for signing up for a forbearance or relief program?
  • Will interest continue to accrue during the forbearance or relief period, or will interest be added to the principal balance at the end of the forbearance?
  • How long will this forbearance or relief period last?
  • How will missed payments be made up? Will making up for the missed payments lead to an increase in the monthly payment?
  • If the borrower is unable to make payments after forbearance or relief ends, is there an opportunity to extend the relief?

Forbearance or relief programs through private lenders vary, but many are allowing borrowers to postpone or reduce their payments. Others are waiving late fees or allowing borrowers to modify their loans to reduce the interest rate and/or extend the loan term to lower monthly payments.

While you may not be able to request forbearance or relief, you may be able to help the borrower understand their options so you can make this important decision together.

Co-signer release

Some lenders offer the ability to release a co-signer after a certain number of on-time payments and after they’ve met other requirements. However, the use of forbearance or relief programs may impact your ability to qualify for or request co-signer release. Be sure to discuss these options with the borrower and servicer to see if these relief programs are a good option for you.

Get everything in writing

If you’re able to secure forbearance or another relief program, make sure the servicer provides the terms of the agreement in writing. It’s important to monitor your monthly payments to check for inaccuracies, and this documentation can help you dispute any errors.

Check your credit reports

Any payments missed by the borrower can impact your credit too. Because of the coronavirus pandemic, the three nationwide credit reporting agencies (also known as credit reporting companies)–Equifax, TransUnion, and Experian–are providing free online credit reports once a week through April 2021. How often to check your credit reports depends on your situation but once a month should be enough to catch any missed payments or errors. If you see any errors on your credit report, you can work to dispute it with both the servicer and the credit reporting agencies.

The recently passed CARES Act places special requirements on companies that report your payment information to credit reporting companies. Under the CARES Act, how your creditors report your account to the credit reporting companies depends, in part, on whether you’re current or already delinquent when this agreement is made. These reporting requirements apply only if you’re making any payments required by the agreement.

  • If your account is current and you make an agreement to make a partial payment, skip a payment, or other accommodation, then the creditor is to report to credit reporting companies that you’re current on your loan or account.
  • If your account is already delinquent and you make an agreement, then the creditor cannot report you as more delinquent (such as reporting you as 60 days delinquent when you started out 30 days delinquent) during the period of the agreement.
  • If your account is already delinquent and you make an agreement, and you bring your account current, the creditor must report that you are current on your loan or account.

This CARES Act requirement applies only to agreements made between January 31, 2020, and one of the following dates, whichever is later: