Parents need to be aware of student loan pitfalls

The Student Loan your child Subscriptions may be financial risk (Photo: Thinkstock).

Parents and grandparents who have signed private student loans for their children, struggling to get out of them, even if your child successfully paid the debt, suggests a new report.

Approximately 90% of the co-signer who was asked rejected by a private loan released, according to a study of the financial security of the consumer more than 3,100 complaints about private student loans.

Often student borrower can not be without a guarantor for a private loan qualify and even if they do, a good co-signer credit will be given more access to low interest rates.

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"Parents and grandparents present their financial future on the line for the co-signature of private student loans to help family members, to realize the dream of higher education", the Director of the CFPB Richard Cordray said in a statement wrote to accompany the report. "Responsible borrower and co-signer should the guarantor information and standards must release when the right moment is clear."

These provisions affect a small portion of the student loan market - only 7.5% of the loan balances students organized by private lenders, according to a Wall Street Journal report in December.

Many companies tightened its rules or leave the country entirely by the financial crisis, but that financial institutions are looking for ways to attract young customers who can use in the future their products, which are increasingly focused student loan borrowers.

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In 2011, more than 90% of private student loans require a guarantor of 67% in 2008, says the CFPB. As a co-signer is equally responsible for the loan, the company can rely on your ability to access other forms of credit risk.

This is partly why most lenders will announce the ability to co-signer will be relieved of his obligation if the borrower pays the loan on time and have good credit. But rarely have the time borrowers be informed if they are eligible for approval by the co-signer, the information on these provisions is hard to find on lenders site and most cosigner applications are rejected, the CFPB said.

CFPB analysis revealed that many lenders no specific low credit score for the release of a co-signer required. The absence of this information "raises questions about whether the lenders have set appropriate requirements for borrowers who want to get these commonly reported benefits," the report said.

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Many borrowers have informed the CFPB that his co-signer release was rejected the request, if the loan is in tolerance is provided a mechanism that allows borrowers to temporarily suspend payments on their loans or less.

To make matters worse, many contracts for private student loan provisions have to be set for loans automatically in default if the co-signer bankruptcy or death, even if the borrower makes files making payments on time, which is CFBP. Without an easy way to rid a guarantor from its obligations, is to be in default the principal at risk if something happens to your co-signer. However, many financial institutions have said the unplaced CFPB loans "self default" more.

Consumer advocates advise borrowers loans for students to use private loans if you have exhausted all federal funding opportunities. Government student loans offer borrowers a fixed rate, regardless of their credit history and a variety of safety nets and payment options, if a borrower falls on hard times.