Can Private Student Loans Auto Default? | McCarthy Law PLC
April 22, 2014

Can Private Student Loans Auto Default?

Unfortunately.  Student loan debt is the only consumer debt that has grown since the peak in 2008.  Currently the total student loan debt sits at 1 trillion dollars with $25,000 being the average per borrower.  The balances of student loans have surpassed both credit card and auto loan debt and are the second largest form of debt outside of mortgage balances.

A disturbing trend among private student loans is coming to light. The following article in the finance section of CNBC points out that many private student loans have “auto-default” clauses.  These clauses allow lenders to call the note or put the loan into default if your co-signer dies or files bankruptcy.

In fact, I met with a potential client just this week who was in exactly this situation.  The client’s father had passed away and, wanting to do the right thing, the client had contacted the lender to advise them of his passing.  The lender, despite the fact that the client was current on the loan payments, accelerated the balance and demanded full payment from the grieving widow.  The good news is that we are often able to help clients in this situation, but it doesn’t change the fact that it is an awful situation.

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