Question: I co-signed a private student loan for my daughter in 2006. Shortly thereafter my health deteriorated and I was granted disability benefits retroactive to June 2006. I have not worked since June 2006 and my only income is from my social security disability benefits. and my retirement benefits since I was a federal employee. Both agencies (Social Security & US Office of Personnel Management) deemed me disabled.
Unfortunately, my daughter ignored, and continues to ignore, her responsibility to make the payments on this loan, and they are now coming to me for payment. I was able to make a few installments on the loan, but I am no longer able to make any type of payment. I explained to the bank that I have a limited income due to a disability, but they keep calling me asking for payment and I keep explaining to them that I can’t send them something I don’t. don’t have. Is there a way I can get out of this loan or do you have any other advice for me?
To respond: Typically, when you co-sign a loan like this, each co-signer is responsible for the full amount of the loan. To see how you might be released as a co-signer, “Get a copy of the loan promissory note. This is the document that sets out the terms and conditions of the loan and should include provisions for a co-signer release. In most cases, the lender will require the loan to be current, among other things, before granting the co-signer release, but it’s always worth exploring,” says financial adviser Zack Hubbard of Greenspring Advisors.
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Typically, a co-signer release requires the primary borrower to approve the co-signer’s release, and the lender must also approve the co-signer’s withdrawal, which can only be done if the borrower demonstrates that they are able to make payments. You should also check the terms of your loan to see if there are any disability provisions. Only the primary borrower’s total and permanent disability may qualify for forgiveness, but read the fine print to see that.
Unfortunately, there’s often no easy way out here because you co-signed the loan, making it your responsibility to pay it back. “Your daughter is the key to the solution. You should keep trying to get him to contact the lender to come up with some type of repayment plan,” says Certified Financial Planner John M. Piershale. Adds Anna Helhoski, student loan expert at NerdWallet. “If your primary borrower refuses to repay the debt you co-signed and you are also unable to make a payment, your only option may be to negotiate with the lender. If your lender refuses to comply, file a complaint with the Consumer Financial Protection Bureau. As you negotiate, try to pay at least the minimum monthly payment to keep your loan in good standing.
Consultation of a lawyer and release of student loans in the event of bankruptcy
Matthew Jenkins, Certified Financial Planner at Noble Hill Planning, says this situation likely requires a lawyer. “It is possible that your daughter will remove you as a co-signer, but that would require your daughter to refinance the loan and it does not seem likely in this case. As this is a private loan, you also have the option of opting out as a co-signer through the bankruptcy process, but this is a long, complicated and expensive undertaking and there are no guarantees. that a judge will agree with your point of view,” says Jenkins.
Still, it might be worth consulting a bankruptcy attorney. “to see if they can help you get a loan release because of your disability,” says Certified Financial Planner Lisa Weil. Since you already qualify for Social Security disability benefits, this indicates that you are indeed battling a severe disability and your resources are already quite limited – which can help you get loans discharged in the event of bankruptcy. (note however that this is difficult to do).
“Unfortunately this kind of scenario is not at all uncommon and although I realize this particular ship has sailed before, that is why I would try to dissuade any client nearing retirement from co-signing a loan. like this one,” Weil says. But one incredibly positive thing to note, according to Piershale, is that your Social Security benefits may not be eligible for garnishment with private student loans like they would be with a federal student loan.