Latest Posts
Home > Debt Articles > How to Get a Co-Signer Off a Private Student Loan

How to Get a Co-Signer Off a Private Student Loan

Private student loans are bad news all by themselves but when you add in a co-signer, things can get very financially messy.

Co-signers think they are doing a nice thing for their relative or child when they co-sign. They think they are helping to further the persons education and give them a hand-up in life. But often what they are doing is sending them down a black hole of debt that the student will never be able to repay and the co-signer will be on the hook for. According to current data more than 90 percent of private student loan lenders require a co-signer these days.

Lenders require co-signers, not to help the student qualify for the private student loan but to have someone to go after if the student defaults on the loan.

Once someone is unlucky enough to cosign for a private student loan it can end in misfortune for either the borrower and co-signer.

Many students are facing demand for full payment for their private student loans when the co-signer either dies or files bankruptcy, says the Consumer Financial Protection Bureau (CFPB). The situation is know as auto-default and is completely beyond the control of the student borrower.

“Students often rely on parents or grandparents to co-sign their private student loans to achieve the dream of higher education. When tragedy triggers an automatic default, responsible borrowers are thrown into financial distress with demands of immediate repayment,” said CFPB Director Richard Cordray.

Auto-defaults when a co-signer dies: Many consumers assume that the death of a co-signer, often a parent or grandparent, will result in the release of the co-signer’s obligation to repay. But many private student loan contracts provide the lender with the option to immediately demand the full loan balance upon death of the co-signer. These auto-defaults may be occurring when data from probate and other court record scans are matched with a financial institution’s customer database, without regard to whether the borrower is in good standing. These defaults are also typically reported to credit bureaus and negatively impact the credit profile of a borrower.

Auto-defaults when a co-signer enters bankruptcy: Many private student loan contracts also allow the lender to place a loan in default if the borrower’s co-signer files for bankruptcy. Even if the loan was in good standing prior to and while the co-signer is in bankruptcy, borrowers submit complaints detailing how they face auto-defaults, including consequences such as credit damage and frequent debt collection calls.

To avoid one of those nasty auto-default situations the CFPB suggests should try to get the co-signer released from the loan and co-signers should make efforts to get off the loans when possible.

And many private student loan lender advertise it is possible for a co-signer to be released from the student loan but make it a complicated and unwieldily process. Furthermore the lenders are not proactively letting students know when their loans qualify to have the co-signers released.

To help remedy the situation, the following instructions and letters can be used by students and co-signers can use to break the bonds of the obligation.

“Steve

Get Out of Debt Guy – Twitter, G+, Facebook

Need More Help?
Choice1
Choice2
Choice3
If you have a credit or debt question you’d like to ask just use the online form. I’m happy to help you totally for free.

Get Out of Debt Free Hotline
debt settlement helpstudent loan help

About Steve Rhode

Steve Rhode
Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
  • http://GetOutOfDebt.org/ Steve Rhode

    Catherine wrote in and asked the following question. I think the answer is in this article.

    “I co signed a loan for my daughter back in 2005. She dropped out in 2008. Six months later she started paying it back. A lot of her payments were late. She went back in 2011 I think. She just took a semester off but plans on going back in January. But she needs to start paying the loan back, as she used her deferment back in 2008. What I’m worried about is her not paying it back, claiming she was unaware that this would happen. I told her to set up auto pay for 2 months, then she’ll be back in January 2015. My big concern is her not paying it back on time. I was told if she makes 48 on time payments then my name can be taken off. Which I know will not happen. I’m getting close to retirement, want to sell my house and get a smaller one and have savings and just enjoy my life. She does not live with me. Is there any way I can get out of this? One person mentioned to sue her. Which I don’t want to do. They also told me I would have to pay 41,000 back if she defaults. She currently owes 70,000. Could she have her wages garnished if I gave them her ss# and where she works? Can I file for bankruptcy? What can I do in a worst case scenario?”

  • http://GetOutOfDebt.org/ Steve Rhode

    Elizabeth wrote in and asked the following question.

    “I filed for bankruptcy in 2012. I had six private student loans discharged, totally to about $43,000, but had a co-signer. I am still making payments on the loans and things are tough financially because of the loans, I have about $150,000 in student loan debt. (I have two bachelor degrees)

    Would I be able to apply for a co-signer release, on the six loans. If I were granted the release would I still be liable for paying the loans, even if they were discharged in bankruptcy?”

    I think this article addresses your issue.

  • http://GetOutOfDebt.org/ Steve Rhode

    Manuel wrote in and ask the following question which I think this article answers.

    “My wife and I are co-signers for my daughter and her ex-husband student loans (Sallie Mae and American Education Services). We are filing for Chapter 13 bankruptcy ASAP. Will bankruptcy removed us for being co-signers?”

Get My FREE Get Out of Debt Guy Newsletter

It is the smart thing to do.

I promise to keep your email safe and secure.

Close

I want to keep you posted each weekday with just one email about the latest get out of debt news, scam alerts and information to beat back debt.

You can unsubscribe at any time with just one click.

After you subscribe, check your email to confirm your subscription. If the confirmation email does not appear in your inbox in a few minutes, check your spam folder for it. Sometimes it likes to annoyingly hide there.


  • It will keep you posted on the latest scams.
  • You will be alerted to the latest articles.
  • You will wind up smarter than everyone else dealing with debt.