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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 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™ also offers undergraduategraduatedental, and medical loans.


  • Eligible borrowers

    Undergraduate and graduate students, parents

  • Loan amounts

    $150,000 maximum, or cost of attendance, whichever is lower

  • Loan terms

    Range from 5 to 15 years

  • Loan types

    Variable and fixed

  • Borrower protections

    Forbearance options available

  • Co-signer required?


  • Offer student loan refinancing?

    Yes - click here for details

Terms apply.


  • Flexible repayment terms
  • Variable and fixed rates, so you can choose
  • Borrowers have hardship protections
  • No co-signer required
  • Offers co-signer release
  • No origination, application or prepayment fees
  • Up to 0.50% interest rate discount for autopay
  • Offers student loan refinancing
  • Accepts in-school payments


  • Non-cosigned loans tend to charge higher interest rates
  • Loan amount is limited to $150,000 maximum, or cost of attendance, whichever is lower

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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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