I Co-Signed Your Student Loan? Now What?


Sorry Mom-You're On the Hook!

Sorry Mom-You’re on The Hook!

Cyndee Marcoux already was stretched thin, thanks to the $80,000 in student loans she racked up after getting divorced and going back to school a decade ago. Her breaking point came in 2010, when her daughter defaulted on student-loan payments of her own.

That’s because Ms. Marcoux, a 53-year-old library administrator in Seekonk, Mass., co-signed for about $55,000 of her daughter’s loans. When the daughter was unable to keep making payments, Ms. Marcoux was on the hook—a burden that forced her to reshuffle her entire life. To scrape up the extra $550 a month she owed, she sold her house, then took a second job registering emergency-room patients on the weekend overnight shift. “You work your whole life and never pay a bill late,” says Ms. Marcoux. “You don’t ever think your kid isn’t going to pay.”

“People are confused about what it means to co-sign, and their ongoing obligation,” says Deanne Loonin, director of the Student Loan Borrower Assistance Project at the National Consumer Law Center, a consumer-advocacy group in Boston. “When they come to understand that they are equally liable, the regrets set in.”

According to the Federal Reserve Bank of New York, some 2.2 million Americans who were 60 or older owed $43 billion in federal and private student loans at the end of the first quarter this year, up from $15 billion in 2007, just before the financial crisis erupted. The figures include loans made to parents as well as those for which older adults have co-signed.

The federal government usually doesn’t require co-signers for the loans it makes to students. But the weak economy is forcing banks to demand co-signing for the private loans often made to families who already have maxed out on federal loans. All told, more than 90% of private loans had co-signers last year, according to the Consumer Financial Protection Bureau, up from 67% in 2008.

For co-signers, the consequences of not paying are severe. Defaulted loans show up on their credit reports as if the debt were their own. Even when loans are current, the added debt can make it tougher for co-signers to qualify for mortgage refinancing or other loans. Faced with the question of whether to pay or not, many older people say they see simply no alternative but to dig deep into savings or tap retirement accounts to fulfill their obligations.

It is almost impossible for someone who co-signed a private student loan to escape the debt. A bankruptcy-code change in 2005 made it much tougher for borrowers or co-signers to discharge private student loans in bankruptcy. The main avenue for ending the payments is to prove “undue hardship,” and the hurdles are high, says William Brewer Jr., president of the National Association of Consumer Bankruptcy Attorneys, a trade group in Washington, D.C. “The court can take the position that all you need to do is sell your house,” he says.

My take: The economy is going to continue to be very sluggish and you can expect a very slow recovery….meaning, more student loan defaults with the banks going hot and heavy after co-signers.

This article should be a great reminder of the responsibilities that come with co-signing. It’s hard for me to believe that children are stiffing their parents and grand parents with these bills-is there no sense of dignity left? I understand that we can all encounter hard times but please find a way not to stiff mom and dad!

This may also be a good reminder of why it’s important to re-look at the benefits of having your assets in a trust. Just suppose that some of these co-signers had their homes, etc in a trust; would that provide them legal relief from debt collectors?

I really don’t know the legal answer but I bet someone reading this does so please feel free to comment. Any other ideas on what avenues parents may take when faced with this dilemma?

You may also enjoy this article: Student Loans-A New Epidemic

You can read the entire article here: New Peril for Parents: TheirKids’ Student Loans. 

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