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I cosigned a private student loan for one child, and my wife cosigned a private student loan for another child, and we have been making minimum payments on both loans for over ten years so it wouldn’t impact our credit scores because the kids aren’t paying them. No late payments on either.
Is there any way for us to get our names off these loans and force the kids to pay them and deal with the consequences of credit damage if they don’t?
These situations are always terrible. As a parent or responsible adult, you did something to help a child. It’s not unusual for people to consign for others not related to them or their own children who walk away from paying.
What Happens When You Co-Sign
Let’s take a step back and look at what co-signing really is.
As the Federal Trade Commission says:
“When you co-sign a loan, the lender (known as the “creditor”) must spell out your obligations in a co-signer’s notice, which says:
- You are being asked to guarantee this debt. Think carefully before you do. If the borrower does not pay the debt, you will have to. Be sure you can afford to pay if you have to, and that you want to accept this responsibility.
- You may have to pay up to the full amount of the debt if the borrower does not pay. You may also have to pay late fees or collection costs, which increase this amount.
- The creditor can collect this debt from you without first trying to collect from the borrower.* The creditor can use the same collection methods against you that can be used against the borrower, including suing you or garnishing your wages. If this debt is ever in default, that fact may become a part of your credit record.
This notice is not the contract that makes you liable for the debt.
*Depending on the laws in your state, this may not apply. If state law forbids a creditor from collecting from a co-signer without first trying to collect from the primary debtor, this sentence may be crossed out or omitted. – Source
When you co-signed for the debt, out of love and kindness, you may have only assumed you were just helping the kids get a loan, and you would not be responsible for the debt if they didn’t pay.
How to Get Out From Under Co-Signing
You said, “Is there any way for us to get our names off these loans and force the kids to pay them and deal with the consequences of credit damage if they don’t?”
Kind of and yes-ish.
If you had an agreement between you and the children, they would pay the loans; you could always sue the children and attempt to get the courts to recognize the contractual agreement. But even if you win, you’d have to try to force them to pay. So ultimately, you might win and lose at the same time.
Private student lenders may have a formal co-signer release. These are more fiction than fact. Past studies have shown lenders don’t like to agree to these because they want the co-signer on the hook for the debt.
For example, Sallie Mae has a cosigner release process. They say, “You may apply to release your cosigner from an open and active loan after you graduate, make 12 on-time principal and interest payments, and meet certain credit requirements.” – Source
That Sounds Amazing!
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But it’s the next sentence that hurts, “Only the borrower may apply for cosigner release.”
Sallie Mae goes on to say:
You (the borrower) must
- Submit a signed and fully completed application.
- Meet the age of majority requirements in your state of residence. This means you need to be old enough to enter into a legally binding contract, which is 18 in all states except Alabama (19), Nebraska (19), and Puerto Rico (21).
- Provide proof of graduation or completion of a certification program (such as a copy of your diploma and/or transcript) for the loan(s) from which you want your cosigner to be released.
- Be a U.S. citizen or U.S. permanent resident alien at the time you submit the cosigner release request. If your citizenship status has changed since you applied for the loan, we need proof of citizenship.
- Provide proof of income (e.g., a current paystub issued within the past 90 days, a most recent W2 along with a current paystub issued within the last 90 days, a most recent tax return along with a current paystub issued within the last 90 days, or Social Security income/disability award letters).
- Be current on all Sallie Mae-serviced loans for the past 12 months immediately before applying for cosigner release.
- Demonstrate a satisfactory payment history on each loan requested for release immediately before applying. You can do this by pre-paying an amount equal to the required 12 principal and interest payments or by making the required 12 on-time principal and interest payments. Interest or fixed payments made during the in-school and separation or grace period(s) do not count toward this requirement.
- Have had no student loan(s) in a hardship forbearance or modified repayment program (including a Graduated Repayment Period) for the past 12 months immediately before the cosigner release request.
- Demonstrate the ability to assume full responsibility for repayment of the loan(s) on your own.
- Pass a credit review that demonstrates a satisfactory credit history including but not limited to no bankruptcy, foreclosure, student loan(s) in default, or 90-day delinquencies in the last 24 months. We’ll obtain a consumer credit report to go along with your application.
- Requirements are subject to change. – Source
You may not owe Sallie Mae. I was just using that as an example.
One Final Option
When the lender doesn’t let the co-signer go, people have successfully negotiated a co-signer release after defaulting on the debt and paying a substantial portion of the outstanding debt to get off the loan. If you want to talk to someone that has had clients deal with this exact issue, call my debt coach friend Damon Day.
So given those options, which one sounds like something you’d want to pursue? Let me know in the comments below.
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