I Co-Signed for a Private Student Loan and It's Killing Me

“Dear Steve,

I co-signed a private student loan that is now in collections and ruining my DTI.

I found your petition for the Fairness for Struggling Students Act on change.org. Have you had any contact with Senator Coons or anyone else on the senate judiciary committee regarding this?
I am a DE resident and trying very hard to push on Senator Coons as he is the chairman of the committee. Any feedback would be greatly appreciated!

Tim”

Dear Tim,

Sorry to hear about the co-signing for the private student loan. It’s something parents do out of love that turns into a nightmare for many.

There has been little progress on getting anything passed yet. At this time it is an annual fight to get something to move ahead but realistically speaking I think the banking lobby is just more powerful than the public outrage over this.

Heck, the Congress can’t even get background checks for guns passed even though 90 percent of people think they should.

Up until 2005 private student loan debt was dischargeable in bankruptcy. The banking industry worked hard to get that changed. They won and consumers lost.

The educational complex is not setup to create awareness about the risks of student loans. I recently wrote Maybe You Should Not Go to College and explored this issue.

But the horse is out of the barn now so we can only deal with your current situation.

Do You Have a Question You'd Like Help With? Contact Debt Coach Damon Day. Click here to reach Damon.

If you look at the chart below you will see beginning in 2009 the number of loans requiring co-signers increased.

And it coincided with the same time lenders started considering borrower ability to pay rather than just lending to anyone.

My best guess is that meaningful private student loan reform is still at least a few years off. But even if a program is put in place to forgive part of the student loan debt, in most cases that forgiven debt will be taxable unless you are insolvent.

I am not aware of any program, even for government loans that allows a co-signer to break free without the other signer on the loan being qualified on their own credit. If the other borrower on the loan is, ask the private student loan company for their process to do that.

So here is the big take away: never, ever, ever, ever, ever, co-sign for anyone. No mater how much you love them.

Please post your responses and follow-up messages to me on this in the comments section below.