One of the most frequent reader questions that I receive looks something like this:
Please help! I cosigned a student loan for my child/grandchild/friend, and they are not making payments. The lender keeps calling me. What can I do?
In some cases, the primary borrower cannot afford the payments. In other cases, the primary borrower may be able to make the payments but has chosen not to do so. Regardless of the reasons behind the borrower’s failure to pay, lenders will expect cosigners to pay the bill.
The bad news for cosigners stuck in this situation is that there are no easy ways to fix things. The good news is that there are several different strategies that have the potential to work.
Today we will look at these strategies to help cosigners.
Cosigner Release Programs
The obvious and permanent solution is for the cosigner to get released from the loan. If a lender releases the cosigner, all responsibility for the debt is wiped away.
Unsurprisingly, lenders don’t like granting a cosigner release. Many lenders require borrowers to make years worth of timely payments before they are even allowed to apply for a release. When the borrower applies to have their cosigner released, they must independently pass a credit check. Lenders tend to be very strict on this credit check and look for any possible excuse to deny the cosigner release.
Fortunately, there is a workaround that can help many cosigners. If the borrower refinances their student loans with a new company, the cosigned loan can be eliminated. This process isn’t technically a cosigner release, but in most cases, it is the easiest way to get a cosigner removed from a student loan.
Help the Borrower Get Their Finances in Order
For some people, managing money comes easy. For others, managing finances represents a major challenge.
It is fairly common for borrowers in the early stages of repayment to miss a deadline. Some student loan companies are notorious for making automated payments difficult. Other times, a simple error connecting bank accounts can be the source of a missed payment.
Along the same lines, many borrowers miss payments because they didn’t realize they had a bill due. Student loans typically come with a six-month “grace period” before the first payment is due. A borrower who has had their contact information change after college may have had a loan slip through the cracks.
Many of these mistakes can be infuriating from the perspective of the cosigner. Fortunately, most can be quickly resolved, before things get ugly for the borrower or the cosigner.
Things get more complicated for borrowers who are financially struggling and cannot afford to pay their bills.
Regardless of the circumstances surrounding a missed payment, some guidance from a cosigner can be very helpful. Cosigners can share strategies to make sure bills don’t get overlooked, and cosigners can help borrowers get their budget in order. The experience shared by a parent or grandparent may be the only thing the borrower needs.
In more extreme cases, the cosigner may also lend some money to the borrower to make sure the payment doesn’t get missed.
The key from the cosigner perspective is to have an open line of communication and to work with the borrower. The enemy in this situation should be the student loan(s). If the borrower and cosigner are at odds, things can get very ugly for all parties involved.
Should I Hire an Attorney or Consider a Lawsuit?
Sadly, things can get messy between a borrower and a cosigner.
The legal system may provide some remedies to cosigners, but the odds are often slim.
By contract, both the borrower and cosigner are legally responsible for the debt to be repaid to the lender. Regardless of what was discussed between the borrower and the cosigner, the lender has a right to attempt to collect the debt from the cosigner if the borrower fails to pay.
The cosigner may choose to hire a lawyer to sue the borrower, but the result could be a hollow victory. A court could require a borrower to repay the cosigner or order them to make payments on the loan, but if the borrower has no money, the cosigner is still stuck in the same position. A cosigner winning a lawsuit against the borrower won’t change the contract between the cosigner and the student loan company.
Contract laws vary from state to state, so those in dire situations may benefit from talking to a local attorney. Unfortunately, most cosigners will find the legal system isn’t as helpful as they might hope.
Investigating Debt Settlements
When borrowers fall behind on their debt, settlement may make sense to the borrower and the lender. The borrower is able to make the debt go away for a fraction of the full debt, while the lender avoids being left empty-handed.
Sadly, the rules pertaining to student loan debt make settlements more difficult. With a personal loan or a credit card, banks and lenders worry that the borrower may go bankrupt which could wipe away the debt. In the world of student loans, erasing debt through bankruptcy is far more difficult. As a result, lenders are less concerned about getting nothing.
When a cosigner is added to the equation, a settlement becomes an even larger challenge. The lender knows they have two people on the hook for the debt. This will make them less inclined to accept partial payment.
Those who have extenuating circumstances or debt that has been delinquent for a while may have better luck, but in most cases student loan settlement is difficult.
Options for Loan Modifications
Some lenders will modify loan terms in order to help the borrower stay current on their payments. The bigger the hardship faced by the borrower, the more likely a lender will be to offer a lower interest rate or monthly payment.
When there is a cosigner in the picture, the lender will normally want to know that both the cosigner and the borrower cannot afford to make the payments.
If the cosigner isn’t in a difficult circumstance, the loan can still be modified, but it will require working with a new lender. Here again, student loan refinancing is an option. Borrowers facing financial hardship will struggle to refinance their student loans on their own. However, with a cosigner, they may get approved.
In this circumstance, a new cosigner can be substituted, or the current cosigner can cosign a new loan. The advantage to the cosigner is that the refinanced loan may have lower monthly payments that the borrower can afford. Once the borrower gets on their feet again, the loan can be refinanced yet again, ideally without the cosigner.
Borrowers and cosigners should educate themselves on the refinance process and the many lender options available. Ideally, the borrower should try to refinance on their own, but if they are denied, the cosigner can help the borrower by cosigning a new loan with better terms. A long-term loan, such as a 20-year loan, can result in dramatically reduced payments for the borrower and prevent the cosigner from having to provide any monetary assistance.
Final Thought: Don’t Lose Sight of the Big Picture
Cosigned loans normally exist between a parent and a child or other close relationship.
Money issues can be devastating to all involved.
Even though addressing issues on a student loan can be a major challenge, there is a workable solution in most circumstances. The key is to be open and to work together to find the best option.
I co-signed a student loan and the primary on the loan will not/cannot pay. I haven’t spoken to her in 10+ years. Her father sent me a message stating he will cover her student loans but now will not. Would I win a suit with his statement?
Just saying that you are going to do something isn’t enough to create a legal obligation to do so. However, other circumstances when added to that statement could potentially create a legal obligation.
That all said, this is a question best directed to a local attorney familiar with the laws of your state.
It sucks that you are in this situation after trying to help someone go to school, and I wish you the best of luck.
Is there anything a truly struggling individual can do to deal with a high-balance, private student loan that’s been cosigned by a twice-bankrupt mother and a deceased grandmother? Refinancing is basically impossible due to unfavorable DTI.
There isn’t any one thing that usually works. However, there are several items that occasionally work.
Especially right now, private lenders are making efforts to accommodate borrowers struggling financially. Calling your lender and asking for help may work. Just be sure you are getting actual help. A deferment or forbearance just delays your problem by a couple months. Try to come up with a plan that works long term… aka one that gives you a meaningful path to eliminating your debt.
Sometimes filing a complaint against a lender or reaching out to the company’s ombudsman will make a difference. For example, if you have navient or sallie mae, this article might help. More generally, this article can also help.
Just remember that the complaint process is more likely to go well for you if you make reasonable requests to your lender and the refuse to accommodate. If you ask for 0% interest, you are not being reasonable. If you ask for an interest rate reduction so that you can start making progress on your loan, it is a more reasonable request. When you file the complaint, be sure to note the help you asked for and what the lender was willing to do.
I have a student loan FFELP through Nelnet for over $40,000 since 2005. I qualify for the Teacher loan forgiveness and the PSFL. My payments are $225/month interest rate of 3.88%. Would it be beneficial for me to consolidate in order to qualify to apply for the 2 forgiveness loans? I can’t afford a higher monthly payment.
It will depend on many different factors. Will you still be working in your eligible job for at least the next ten years?
I’d suggest reading up on FFELP loans and consolidation here:
https://studentloansherpa.com/consolidation-ffel-federal-loans-student-loan-forgiveness/
https://studentloansherpa.com/federal-consolidation-guide/