If a private student loan co-signer either dies or declaresbankruptcy, some lenders are pressuring the borrower to immediatelypaid the loan in full. The rising rate of “auto defaults” in suchcases raised concerns with the CFPB, which issued a report Tuesdayon the topic.

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The CFPB analyzed more than 2,300 private student loancomplaints and more than 1,300 debt collection concerns related tostudent loan debt submitted over the past six months. Many focusedon auto default payment demands issued when co-signers die ordeclare bankruptcy, even when the loan is current and is being paidon time.

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Many complaints also describe the bureaucratic barriersborrowers face in releasing co-signers from their loans, a commonlyadvertised benefit that could help avoid auto-defaults. The CFPBstudy contains a consumer advisory and sample letters to helpborrowers overcome obstacles to co-signer release.

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“Students often rely on parents or grandparents to co-sign theirprivate student loans, and when tragedy triggers an automaticdefault, responsible borrowers are thrown into financial distresswith demands of immediate repayment,” said CFPB Director RichardCordray. “Lenders should have clear and accessible processes inplace to enable borrowers to release co-signers from loans.”

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The CFPB estimates that the combined total for federal andprivate outstanding student loan debt reached nearly $1.2 trillionin 2013. The majority of this debt is from federal loans, whichborrowers typically take out on their own. In rare cases, federalstudent loan borrowers are required to have other individualsendorse their loans, but borrowers are not placed into default whenthose co-signers encounters difficulties.

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Most private student loans, however, do require a co-signer. Infact, according to a 2012 report on private student loans,published by the CFPB and the Department of Education, more than90% of new private student loans are co-signed, often by familymembers.

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The report also offers steps private student lenders can takebefore pushing the borrower into default and immediately demandingthe entire loan balance upon co-signer death or bankruptcy.Co-signer issues have routinely emerged as an area of concern forprivate student loan borrowers, and the complaints have covered awide range of private student lenders who could make it easier forborrowers to dismiss their co-signers' responsibilities, the topCFPB executive said.

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“A borrower should not have to go through an obstacle course,”Cordray said.

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