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Watch out for this little-known clause when having a co-signer on your student loans

Here's what to know about the "automatic default" clause in your private student loan contract.

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Many private student loan lenders offer potential borrowers the ability to have a co-signer if they don't qualify on their own.

Having a co-signer makes it easier to fund your education if you don't have a good credit score or a reliable source of income to make monthly loan payments. But there are some financial ramifications to be aware of if something should happen to your co-signer.

Before you apply for a private student loan with a co-signer, you'll want to review the terms and look for a provision known as "automatic default."

Automatic default is a clause that some private lenders include in their student loan agreements that says if your co-signer should file for bankruptcy or die, the remaining balance comes immediately due in full even if the loan was in good standing. With many student loan balances totaling tens of thousands of dollars, this could be a big issue for borrowers if they can't pay it all off at once.

Below, Select offers advice on what borrowers can do to avoid automatic default and any financial fallout that comes along with it.

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Review any future loan agreement

Before you take on a private student loan, do your homework to make sure you understand what you're signing up for.

Review the terms and conditions in its entirety before agreeing to a loan, and look for language that explains what happens in the event a co-signer dies (there should be other scenarios listed here, such as if your co-signer declares bankruptcy). If you're unsure whether automatic default is part of your loan agreement, ask a customer service representative for their help.

Review your current terms and consider refinancing

Already have a private student loan with a co-signer? Make sure you know what you signed up for as the borrower.

You should look up your documentation to know what you can expect should your co-signer file for bankruptcy or pass away. If your loan terms include automatic default, you may want to consider moving your loan to another lender through a refinance. If you don't qualify for refinancing on your own, you can find a lender that allows co-signers but does not have the automatic default clause.

Another option when refinancing with a co-signer is to look for private lenders that offer a co-signer release option. This allows the borrower to still use their co-signer's good credit and/or income to qualify for the loan, but you can remove them after a certain period of time so you'll become the sole person responsible for the loan.

Citizens Bank Student Loan Refinancing, for example, has a co-signer release option after the borrower makes 36 consecutive, on-time monthly payments of the loan's principal and interest. In addition to refinancing student loans, Citizens Bank also offers undergraduategraduatedental, and medical loans.

Citizens Bank Student Loan Refinancing

  • Cost

    No origination fees to refinance

  • Eligible loans

    Federal, private, graduate and undergraduate loans, Parent PLUS loans, medical and dental residency loans.

  • Loan types

    Variable and fixed

  • Variable rates (APR)

    5.40% - 15.66% APR

  • Fixed rates (APR)

    4.99% - 14.85% APR

  • Loan terms

    5, 7, 10, 15, 20 years

  • Loan amounts

    A minimum of $10,000, up to $300,000 (bachelor's degree or below) or $500,000 (graduate degree)

  • Minimum credit score

    Not disclosed

  • Minimum income


  • Allow for a co-signer


See our methodology, terms apply.


  • No origination fees to refinance
  • Up to 0.50% rate discount available for existing Citizen customers and enrolling in autopay
  • Soft credit pull when you prequalify
  • No prepayment penalties
  • Has co-signer release option after 36 consecutive, on-time monthly payments of the loan's principal and interest
  • Doesn't require borrowers to have graduated


  • Late payment fee of 5% of the unpaid amount of the payment due
  • Must be an existing Citizen Bank customer to get the full rate discount

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Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
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