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After they are out of federal options, students have no choice but to reach out for private student loans if they want to attend college. For those who have no credit or bad credit, a co-signer is usually required for them to be considered for loans or for lower rates of interest.

Federal student loan debts have touched a whopping $864 billion. Private student loan outstanding amounts to $150 billion according to a July 2012 estimate by the Consumer Finance Protection Bureau.

According to the report, our economy is not the sole cause of private loan decline. Other factors that contribute to this decline include decline in co-sign rate, weaker underwriting practices and reduced school certifications.

In case of student death or disability, lenders of private loans with co-signers are not required to be forgiven. Parents of students who have unfortunately died young are facing a very tough situation with student loan companies hounding them. Already depressed with their loss, they are struggling to work and save enough to repay the loan.

In their enthusiasm to give their child the best possible education, parents tend to sign the loan papers as a co-signer without really bothering to read through the fine lines. Parents suffering after the death of their kids ask for loan forgiveness from the companies but their request is usually denied as the companies’ claim they are regrettably not in a position to write off the loans.

Parents feel that when they look at the paperwork they signed, they cannot find any fine print and definitely nothing to the effect that in case of the borrower’s death, they are liable. Sadly, parents as co-signers have to face the brunt of the loan companies.

Another aspect that stands out in this scenario is the horrible customer service. Each time they are late with the payment; they have to call customer service and repeat the situation all over again and also resubmit the death certificate. This becomes hugely taxing on them especially since they are already depressed.

First Marble Head Corporation and American Education Services say they cannot really interfere and comment on these loans as they are bound by privacy laws. This also prevented them from forgiving these loans. They claim that they are not the loan or the owner or the lender and their duty ends with servicing these loans for lenders.

According to First Marble Head spokesperson Gary Santo, these loans require the co-signer to read through carefully and sign a series of disclosures that does not include every imaginable scenario.
Legislation is being considered to make private loans similar to federal loans.

The Know Before You Owe act of 2013 was reintroduced by Senators Harkin, Durbin and Franken on January 23rd. This legislation will offer counselling to students about their eligibility for Federal loans and federal student aid programs that are largely untapped. Students are advised to go through all this carefully before reaching out for private loans.

It is time for parents and students wake up and consider all federal loan and aid possibilities before reaching out for private loans.