A reader wants to know how to get out of a cosigned student loan and stop being financially responsible for someone else's debt.
Question: How do I end being a cosigner on a student loan?
— Sonia in California
Howard Dvorkin CPA answers…
As I’ve often said, the shorter the question I’m asked, the longer the reply I need to give. In this case, the answer is longer because I don’t know the details of your situation.
First, I’m assuming this is a private student loan as opposed to a federal one. There’s really only one federal loan that family or others can cosign for, called Direct Plus. Since that’s not a common loan, let’s focus on private student loans.
The difference with private student loans
Private student loans are those you get from a bank, credit union, or other non-governmental lender. Because these are private businesses, they can set any interest rate, loan limit, and other terms they choose. Often, the interest rate will be affected by your credit history and good credit will mean a lower interest rate.
Among those terms: How cosigning for the loan will work out.
As you’ve discovered, Sonia, “cosigning” sounds much more innocuous than it is. You’ve essentially committed to paying off this loan if the person who took it out fails to do so. The lender doesn’t really care if you have the money, or if it’s a hardship to pick up those monthly payments. You’ve signed a legally binding contract.
Five years ago, the Consumer Financial Protection Bureau reported, “more than 90 percent of new private student loans are cosigned, often by a parent or grandparent.” Since then, student loan debt has topped $1 trillion. So I imagine that figure has increased.
Unfortunately, private student loans don’t come with all of the same repayment options that federal student loans do.
Getting a private student loan cosigner release
The bottom line is, if the lender doesn’t want to let you off the hook, it doesn’t have to – but it doesn’t hurt to ask. If the loan you co-signed came from Sallie Mae, a popular provider, there’s actually a process for that. However, the primary borrower has to ask for you to be released. You can’t do it alone.
This happens through something called a private student loan cosigner release. The co-signer must meet certain requirements for repayment set by the lender. The process starts with the primary borrower filling out a release application. Read about the other steps on the Sallie Mae website.
Final thoughts on cosigned loans
If you’re in dire financial straits, and paying off someone else’s loan is pushing you toward bankruptcy, then it gets even worse: Bankruptcy doesn’t automatically relieve you of student loan obligations. That gets complicated because bankruptcy rules vary by state, but Debt.com has a report called What If You Cosigned a Borrower in Bankruptcy?
If after reading that you still have questions, call Debt.com at (855) 996-9526 and ask for a free debt analysis. Because you didn’t provide other details, there may be options you don’t know about. For instance, if the borrower agrees to get you off the loan, it might be easiest to simply refinance the loan or consolidate into a brand-new loan.
For those reading this who are thinking about being a cosigner on a student loan, I hope this gives you pause. If you’re a parent, relative, or friend trying to help a young person graduate from college, there are other options. Please explore them first.
Published by Debt.com, LLC