Did you cosign a student loan for your grandchild? the perils and pitfalls

If you have cosigned a loan for a grandchild, you should know that after 12 months of on-time payments, students can apply to have the grandparent removed. This benefits not just the grandparent cosigner, but also the student. For most private student loans, if the cosigner dies or goes bankruptcy, the lender has the right to declare the entire balance of the loan due.  If the cosigner has been removed from the loan, the death or bankruptcy of the cosigner has no effect on the loan.  For loans issued prior to 2009, the death of the borrowing student could mean tragedy to the cosigner. The lender could declare the entire balance of the loan due. This has devastating effects on a family who just lost a child to an untimely death. 

I think the Consumer Financial Protection Bureau is going to issue new regulations that give student loan cosigners more rights, but until they do, I urge parents, and especially grandparents not to cosign on student loans for any more money than they can afford to lose.  And if you can live without the money, it might just make more sense to give the money to the student outright and save the hassles down the road.  For more on this topic from the CFPB, click on the link here.