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What Rights Does a Student Loan Cosigner Have?



Question: I’m 100% disabled and have filed the proper paperwork with the Social Security Administration. I was told that my disability excuses me from repayment on my student loans. However, within 14 days of filing these documents, the co-signers on my loans were taken to court and now their wages are being garnished!! What are my co-signers’ options, and could they lose their house? Thank you in advance for your prompt reply. – Hunter F. in Arkansas

Andrew Pentis, personal finance expert and certified student loan counselor at Student Loan Hero, responds…

Your question ties together two issues we’ve touched on previously in this column: whether disability really means student loan discharge, and why it can be so difficult to get student loan forgiveness programs. And that’s understandable: the Department of Education still has work to do in terms of helping borrowers qualify for student loan forgiveness.

In your case, Hunter, you’ve at least crossed one item off the list in confirming your eligibility for the government’s Total and Permanent Disability (TPD) Discharge.

On the other hand, your cosigners’ situation is obviously troubling. Lawsuits, wage garnishment and worse can certainly turn one’s finances upside down.

Before we look at possible solutions for your cosigners, let’s clarify the details of your situation.

Are you sure about your loan type?

Hopefully, this isn’t news to you, Hunter, but only federal student loans are eligible for TPD discharge. Also, most federal student loans don’t include cosigners.

Before 2010, under the now-defunct Federal Family Education Loan Program, borrowers with an adverse credit history could piggyback on an “endorser.” Although named differently, endorsers share the same responsibility as cosigners: to repay the debt if the borrower becomes unable to.

These days, however, only PLUS Loan borrowers without strong credit would attach an endorser onto their loan agreement. Otherwise, no endorsers are needed for other federal loan types.

As you review your loans, make sure that the Department of Education lent all of them. You may have private loans in the mix that won’t be wiped out by the TPD discharge program, leaving your cosigners in the lurch.

Private student loans often include cosigners, but unfortunately not all private lenders award cosigner release, let alone a disability-related discharge. Sallie Mae, Wells Fargo and Discover are among the few lenders that do, but most don’t.

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What’s the status of your discharge?

You also mentioned that your cosigners or federal loan endorsers were dragged into court within 14 days after filing your TPD discharge application. As you might already know, these applications may take about a month to be reviewed.

If your discharge remained under review (or was approved without being awarded) at the two-week mark, that could explain your cosigners’ grief.

According to the Department of Education, defaulted loans remain in collections while TPD discharge cases are decided. In the interim, your cosigners would be held legally responsible for repayment, be vulnerable to court action and suffer consequences like wage garnishment.

The good news is that once an approved TPD discharge takes effect, the wage garnishment – like the loan itself – should disappear.

As for your cosigners’ options…

Our first recommendation, Hunter, is to clarify the details of your loans and discharge status. If you have only federal loans and are indeed about to receive complete forgiveness via TPD discharge, your cosigners’ legal troubles should end soon.

If your cosigners remain liable for your repayment, however, you should huddle with them to set a path forward. Work together to catch up on the loans by making payments in order to stave off wage garnishment or other, even worse consequences. You could also seek assistance from a student loan counselor or lawyer.

Unfortunately, there are rarely easy fixes to complicated student loan problems, and this one is no exception. But we hope this guidance offers at least some help for you – and your cosigners – in reaching the best possible solution.

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