A co-signer's disability does not alleviate him from his responsibility to repay student loans.
When you co-sign a loan for another person, whether that individual is a friend, child or other relative, you accept permanent responsibility for repayment of the debt. Co-signers vouch for the reliability and worthiness of the borrower, yet also ensure repayment of the debt by personally guaranteeing the terms. Regardless of what life events transpire, the obligation of the co-signer remains unchanged.
Why Have a Co-signer?
Borrowers with unacceptable credit histories or insufficient financial means to receive standard approvals for loans can be granted acceptance with the involvement of a co-signer. Lenders consider the assets, income and credit of both the primary borrower and co-signer. The result is a larger pool of resources that, when combined, meet or exceed the lender's established minimum criteria and guidelines for approval.
Repayment Terms
Loan contracts do not have separate repayment terms for the borrower and co-signer. Lenders make no special provisions for loans with co-signers, as both parties are treated equally and considered responsible under the same agreement. The credit history and profile of both borrower and co-signer reflects responsibility for the loan, and payment history is notated in both credit reports.
Co-signer Disability
A co-signer's disability, either temporary or permanent, has no bearing on the repayment terms of the loan. Since the primary borrower should be making scheduled installment payments, the physical well-being of the co-signer is irrelevant. Unfortunately, if the borrower is unable to make payments, and the co-signer has taken responsibility, his disability does not elicit sympathy or qualify him for any form of relief from the financial obligation.
Contingency Planning
The most logical method of preventing financial devastation for both borrower and co-signer as a result of disability is to purchase an appropriately structured insurance policy. Disability insurance provides a monthly benefit payable to the owner if he becomes disabled and can no longer earn an income. The regular monthly proceeds of a disability policy can be used to fulfill the owner's obligations and pay the student loan installments.
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