Legal Question in Credit and Debt Law in Pennsylvania

No; the lender does not "retain" any rights. You do not indicate when the co-signer died, whether an estate was probated or when exactly this loan went into default.

When a person dies, claims can be filed against his/her estate. There is a cut-off period for filing claims assuming that notice was given. In your scenario, however, the default did not occur until after the co-signer's death. In such case, no claim would have arisen prior to death. It may be that the time passed for even filing a claim. In such case, there would be no co-signer on the loan and only the primary borrower would be liable.

If the estate is still open or if a claim could still be filed, maybe the lender would file a claim against the co-signer's estate. That does not mean that the lender would get paid though. It would depend on what kind of probate assets the co-signer owned. If the co-signer had few probate assets or probate assets that were exhausted by higher priority claims, then again, the lender would get nothing and would have to look to the primary borrower.