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Can’t pay your student loans? Here is what you should tell your cosigner.

Telling your cosigner you can’t afford your student loan payments is scary. Not telling them and missing a payment is much worse.

Written By: Michael P. Lux, Esq.

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One of the more devastating aspects of struggles with student debt is the potential conflict with your cosigner.

Every year college students across the country cannot qualify for loans on their own, so they go to family and friends to get the loan cosigned.

Cosigning a loan means more than just vouching for someone’s ability to pay. If the borrower fails to make payments on the loan, the cosigner is on the hook.

Many cosigners fail to consider the possible consequences if the borrower cannot make payments. Facing this harsh reality is a scary moment for many consigners. As the primary borrower, there are several things you can do for your cosigner, even if you can’t make payments.

Managing a Student Loan You Cannot Afford

Lenders tend to have very little mercy when it comes to loans where there is a cosigner. After all, if you can’t pay, they have another person they can go after who is legally obligated to pay the debt.

If you are afraid you cannot pay, the critical first step is to call your lender to discuss the options available. Some lenders will tell you there is no choice, while others may offer extended plans or graduated plans that can give you lower payments in the short term. In the worst-case scenario, a deferment or a forbearance might work temporarily. However, borrowers should exercise caution with this route as it could make things worse.

Sherpa Tip: Getting a cosigner release is a great way to help your cosigner. It removes their legal obligation to repay the loan.

However, if you are struggling to keep up with student loan payments, the options for a cosigner release are unlikely to be successful.

Talking to Your Cosigner

If you can’t make your monthly payments, your cosigner will find out.

As the borrower, you have a choice. The cosigner can find out there is a problem because they received a collection call from your lender. Alternatively, you can call your cosigner to warn them of the upcoming trouble.

This conversation isn’t easy, but it is necessary.

For some cosigners, maintaining their credit score may be more important than the money in question. They may decide to immediately take over the payments so that their credit is not negatively affected. A heads-up phone call gives your cosigner time to explore their options and make the necessary preparations.

Have a plan to fix your situation

It isn’t pleasant telling someone that you can’t pay your bills and that they are about to get a call from your creditors, but it is unavoidable.

To make it go a little smoother, have a plan to address your issues.

Start by talking about the options that you explored with your lender. Outline the steps that you took to avoid getting into this situation.

Next, outline your budget. Finances are typically a more private matter, but in this case, it is the business of your cosigner. Share the costs that you cut out of your life in an attempt to stay caught up and outline your monthly budget. This shows the effort you put into avoiding the situation and creates an opportunity for you and your cosigner to discuss ways out of the problem.

Financial issues can put a strain on any relationship, so the more you can do to put your cosigner at ease, the better. If you are hunting for a job or have an idea for ways to fix this situation, it may put your cosigner at ease.

Possible solutions to a complicated situation

Sometimes the credit score of the borrower and the cosigner gets damaged. Another common outcome is that the cosigner starts making payments for the borrower. However, there are also a couple of long shots worth trying.

If the cosigner is also in a difficult financial situation, another call to your lender may be in order. For example, Navient has a rate reduction program for borrowers struggling to keep up. If you call with your financial details AND your cosigners, you might still be able to enroll. This could result in a dramatic reduction of your interest rates and might be your chance to get things under control.

If your cosigner has excellent credit, refinancing the loan might also be an option. There are a large number of companies offering student loan refinancing services. The way they handle cosigners varies greatly from lender to lender, so it is advisable to shop around. Your cosigner might be hesitant to sign a new loan given the problems you already have, but a lower rate or longer repayment term could help keep the payments manageable.

A Financial and Personal Issue

Falling behind on a loan with a cosigner is a lousy situation.

Your cosigner might feel betrayed or scared when they learn about your student loan struggles. They did you a favor, and because of that favor, they now face a difficult situation.

Acknowledge the reality of the situation. There usually isn’t an easy fix. However, the right mixture of honesty, patience, and hard work can make things much more manageable.

About the Author

Student loan expert Michael Lux is a licensed attorney and the founder of The Student Loan Sherpa. He has helped borrowers navigate life with student debt since 2013.

Insight from Michael has been featured in US News & World Report, Forbes, The Wall Street Journal, and numerous other online and print publications.

Michael is available for speaking engagements and to respond to press inquiries.

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