May 23, 2019

Worst Case Scenarios for Private Student Loan Co-signers

worried student loan borrowerA recent U.S. News & World Report story about student loans contained a startling fact – more than 91% of private student loan borrowers took out private student loans with a co-signer.  In most cases, that co-signer is a parent.

What are the potential issues that could impact you if you are a co-signer? 1

First, you need to verify that the loan you co-signed for is a private student loan.  If you co-signed for a federal or federally guaranteed student loan, you will have additional protections.  This article focuses on private student loan co-signers only.

Second, understand that as a co-signer, you have equal liability as your child (the other borrower).  As a practical matter this means that your child will receive a loan payment statement with a due date.  If your child is even a day late, the private student loan lender can and will call and write you to demand payment.

Again, in the eyes of the lender, you and your child are equally liable from day one.

If you are a private student loan guarantor, you should do everything in your power to help the main borrower (your child) avoid default.  Thus, you need to know what constitutes a default event under the loan contract.  This default event could be a delinquency in payment as short as 30 days.  It could also be a bankruptcy filing by either borrower (you or your child).

You want to avoid default because it triggers a number of unpleasant consequences.  First, your credit (and the credit of your co-borrower) will take a hit.  Second, a default usually triggers an increase in the interest rate as well as penalties.  In some loans, collection fees which are a percentage of the outstanding loan may be assessed.

I have seen loan balances jump up by $10,000 or more because of a default.

Private student loan creditors are often very aggressive with collection efforts, including phone calls and letters.  They are also quick to file lawsuits – here, too, “reasonable attorney’s fees” are often added to the outstanding balance.

Assuming you have no defense to the defaulted private student loan lawsuit, then your wages are subject to be garnished, your bank accounts garnished, your real estate liened and, in some cases, assets seized.

You can file a Chapter 7 bankruptcy to delay the execution of a student loan judgment by a few months, or you can file a Chapter 13 to pay this judgment debt back over 5 years.  Except for very, very unusual cases, you cannot use bankruptcy to discharge private student loan debt.

Unfortunately, the number of unhappy, surprised co-signers is on the increase.  Many new and relatively new graduates are having trouble finding jobs, much less jobs that will allow them to comfortably pay their private student loan debt.

As a co-signer, you must act proactively – do not wait for your child to go delinquent, or, worse, default, before jumping in to get involved.

Have questions about private student loan debt and options that may be available to you.  Contact my office by using the email form on this page.

  1. Note the difference between a co-signer and a guarantor.  A co-signer’s obligation is exactly the same as the other co-signer, regardless of who is receiving the statements.  A guarantor, on the other hand, only becomes liable if the primary borrower goes into default.  See Wikipedia’s definition of co-signer here, and guarantor here.
Jonathan Ginsberg

Jonathan Ginsberg

Attorney at Law at Ginsberg Law Offices
Jonathan Ginsberg has served the Atlanta area community as a personal bankruptcy and student loan debt management lawyer for over 25 years. Contact Jonathan for straight answers to difficult debt problems.
Jonathan Ginsberg
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Jonathan Ginsberg

Jonathan Ginsberg has served the Atlanta area community as a personal bankruptcy and student loan debt management lawyer for over 25 years. Contact Jonathan for straight answers to difficult debt problems.

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