14 Mar What happens if my grandfather cosigns my student loans?

Q. I am going to have my grandfather cosign my student loans. What are the repercussions if he passes away? What about PLUS loans?
— Student

A. Cosigning a loan is not a small deal.

If your grandfather cosigns on your private student loans, he would be equally liable for the student loan debt, said Charles Pawlik, a certified financial planner and chartered financial analyst with Beacon Trust in Morristown.

As a result, if you were to default on the loan, your grandfather would be held responsible for the balance and could incur damage to his credit score and potentially be subject to liens or judgements to collect what is owed, he said.

“If your grandfather were to pass away, the loan agreement that outlines the terms and conditions for the loan would dictate what happens,” Pawlik said. “Some lenders may include an automatic default policy in the student loan agreement, which would mean that the remaining balance of the loan comes immediately due in full in the event that your cosigner passes away or goes bankrupt.”

Lenders may also allow for the option for the primary borrower to take over the loan, remaining responsible for continuing to make payments and for the full amount of the loan, he said.

“It’s also important to note that some lenders may have a cosigner release option in the loan agreement which allows the borrower to initially have a cosigner to qualify for the loan, but have the ability to remove the co-signer after a certain period of time of consecutive on-time payments,” he said.

Most federal student loans do not require a cosigner, Pawlik said.

“PLUS loans are federal loans offered by the U.S. Department of Education that allow for parents to directly borrow to assist with paying for their children’s college education,” he said. “However, PLUS loans do require a credit check. Grandparents are not generally allowed to take out PLUS Loans on behalf of their grandchildren, unless the grandparent has legally adopted the dependent student.”

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This story was originally published in March 2024.

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