Did you cosign for a student loan for your child or spouse? Co-signers and the student borrowers both owe the full amount of the loan. The primary borrower might pay the loan now, but if they stop paying, those debt collectors will be coming after the the co-signer for the loan. ***It’s important to keep in mind that the student borrower could file a Chapter 13 and protect you as the co-signer should they get into a situation where they cannot make their payments or, if necessary, you could file a Chapter 13 to protect yourself.*** But back to our discussion…
Co-signers can be released from student loans. It’s tricky, but in many cases there is a way out for you. The facts depend on whether it is a federal loan or a private loan and the terms of the loan.
For instance, if the primary borrower for a federal student loan dies, then the loan can be discharged and the co-signer is released. It works the same way if the primary borrower becomes permanently disabled.
If the loans are private student loans, death of the primary borrower triggers a default and the lender can demand payment in full. When this happens, the debt collectors take over. Student loan debt collectors are getting paid on commission which means if they don’t collect, they don’t get paid. They aren’t interested in your problems and don’t know or don’t care about getting you released from the loan. The most important first step is to read the fine print and then read it again. You get a lawyer to read it. You will be surprised at what is buried in the fine print. Don’t take the debt collector’s word for anything. Read the fine print so you know your options.
If the student loan you signed does not have an escape clause, don’t give up. Write the lender and ask what their policy is for releasing a co-signer. Debt collectors and lenders don’t always reveal all the options to you. You may need help from an attorney to know your rights and to understand all your options. It’s always a good idea to get legal advice before executing any legal documents or modifying your loans, especially if the primary borrower is unable to pay or stops paying.