I co-signed a private student loan in 2005 for my ex-wife (she was not my ex-spouse in 2005). The amount was $10k. Current balance is ~$6,400 and is in deferment (1-2 months left on that). She agreed to pay it post-divorce but fails to do so unless her arm is twisted enough (usually when it becomes 120+ days past due).
A. What can I do (if anything) to get out of this arrangement?
B. Assuming it is difficult or impossible to get out of this arrangement, what can I do to enforce her commitment to pay (separate from creditor)?
C. Are there different consequences for failing to repay student loan debt if the student loan is private vs. government? Can wages be garnished without going to court on private loans?
Hopefully you’ve now learned to never cosign ever again. I’m just looking for some silver lining in this mess. No sense wasting a perfectly good mistake, I always say.
When you co-sign you agree to be 100 percent liable for repayment. That is a contractual agreement between you and the lender.
A divorce agreement is an understanding between you and your ex-spouse how things will be handled and does not alter legal contracts from before the divorce.
So even though she agreed to pay, you are still on the hook as a cosigner. And based on her payment history it is unlikely the lender is going to let you go.
The Consumer Financial Protection Bureau has looked at the reality of private lenders letting go of cosigners. And they confirmed, lenders say they will do this, but don’t do it about 90 percent of the time.
You certainly have a legal right to enforce the terms of your divorce agreement but you will have to pay an attorney who is licensed in your state to go back into court and try to enforce this. Good luck with that approach.
The private lender does not have the right to administratively garnish your wages. So you can rest easy about that. However, they could sue you and go for a judgment and garnishment and the negative payment history is probably dragging down your credit score.
You are left with four logical solutions:
- Do nothing and cross your fingers things improve on her payment history. Deferment though just inflates the balance so you are walking backwards when payments are not made or delayed.
- Take her back to court and try to enforce the divorce agreement. You’ll have to invest money in that approach.
- Payoff the loan and be done with it. It will also let your credit rebound quickly.
- Work cooperatively with your ex-wife to default on the loan and attempt to settle or fight the loan. See Top 10 Reasons You Should Stop Paying Your Unaffordable Private Student Loan.