Dear Quentin,
My beloved grandfather tried to help out his grandson by co-signing the grandson’s student loan from the Massachusetts Educational Financing Authority — which is like a private family loan and not a federally held student loan.
Unfortunately, this grandson skipped out on paying the loan. My grandfather passed away several weeks ago. The loan is now in default and I have no idea where my cousin is. I’m appalled. What happens now?
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If a co-signer on a loan dies, is the loan forgiven, or is the estate forced to pay?
The Cousin
Dear Cousin,
I’m sorry your grandfather passed away, and I only hope that he had no knowledge of his grandson’s behavior before he died. I have good news for your grandfather’s estate — and his heirs — and bad news for the grandson who skipped town.
Upon the death of a MEFA loan nonstudent co-borrower, the deceased and their estate are no longer liable for the loan, according to a spokesperson for MEFA. The estate should notify MEFA’s loan-servicing company, AES, at 800-233-0557 in order to provide proper documentation.
“Upon the passing of a co-borrower, a student borrower does remain responsible for the loan,” the spokesperson says. “Per MEFA’s policy, a loan that is 180 days past due is deemed to be defaulted and may be referred to our default collections firm.”
In other words, the loan won’t go away just because your cousin skipped town. “We urge any MEFA loan borrower who is behind on loan payments to reach out to us so that we can help them manage their loan obligations,” the MEFA spokesperson says.
There’s one important takeaway for a co-signer of a student loan: Make sure the loan is not for more than you can afford to repay. Research shows that a quarter of co-signers end up making at least one payment.
If the borrower misses payments — even if they later catch up — the missed payments could hurt the co-signer’s credit score, which could then push up the cost of car and personal loans and mortgages for that borrower, or even result in a loan application being declined.
Even co-signing for a loan can impact a person’s credit score. A FICO FICO credit score is calculated using a variety of credit data, including payment history (35%), the amount the person owes (30%), the length of their credit history (15%), new credit (10%) and their credit mix (10%).
Requesting a lower monthly payment
Your cousin could request a lower monthly payment on his student loan. Most reputable loan companies will want to work with borrowers to get them back into the black. The Consumer Financial Protection Bureau says rehabilitation programs are offered by some lenders.
“Be sure your lender tells the primary borrower all the requirements of the program, such as additional costs, and whether the default note can be removed or updated on your credit reports,” the CFPB says.
Of course, it’s easy to see your cousin as a ne’er-do-well who took advantage of your grandfather, but the truth is probably more complicated than that. He likely got in over his head, got scared and ran instead of facing up to his responsibilities.
Over the past 30 years, adjusted for inflation, annual tuition costs grew from $4,160 to $10,740 at public four-year colleges in the U.S., and from $19,360 to $38,070 at private nonprofit institutions, Forbes reported in April.
It’s hard not to feel sympathy for your cousin and the many others like him. Student-loan debt is a huge burden for millions of Americans. The total amount of student debt currently stands at $1.75 trillion, with federal student loans accounting for more than 90% of that figure, Forbes added.
If your cousin is looking for a job, he should know that approximately 95% of companies carry out background checks on job candidates and, according to this survey by HR.com and the National Association of Professional Background Screeners, 16% pull credit or financial checks.
So what now? If your cousin gets in touch with you, tell him that you are here to help — not as a co-signer, but as support to help him go through his finances and work out a payment plan. The real monster in this situation is the unpaid debt, not your cousin.
Other columns from Quentin Fottrell:
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