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CFPB warns private lenders can send students to early default
WASHINGTON (4/23/14)--Some private student lenders are demanding full payment of a loan when a co-signer, such as a parent, has died or filed for bankruptcy, a practice that drives many loans directly into default, the Consumer Financial Protection Bureau reported on Tuesday.

This practice, CFPB Student Loan Ombudsman Rohit Chopra said, is happening even when the borrower is making monthly, timely payments on their loan. The information is included in the CFPB's mid-year report on the private student loan market, which examines more than 2,300 private student loan complaints and more than 1,300 student loan debt collection complaints received by the bureau between Oct. 1 and March 31.

Credit unions are not mentioned in the report.

While many private student lenders claim to give borrowers the option of releasing a co-signer's signature after a given period of time, the language in these documents is often hard to decipher, the CFPB said. Further, many student loan borrowers said they have faced issues when they tried to activate these clauses in their loan contracts.

The CFPB in a blog post provided advice and sample letters for student loan borrowers who are facing this issue.

For the CFPB report, use the resource link.
 
 
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