Grandma, will you cosign a college loan for me?
Stuck with student loan debt? You are not alone
June 1, 2017
You may think student loan debt is mostly for kids. But, think again. Kids are graduating from high school right about now, and looking toward college. And that might mean they’re looking to Grandma and Grandpa for help paying the bills, either with gifts of money, or as cosigners on student loans. But should you consider cosigning?
A lot of parents and grandparents do cosign. Between 2005 and 2015, consumers age
60 and up became the fastest growing group of student loan borrowers. For some of those borrowers, they are still carrying debt from their younger years, or they’ve gone back to school recently. But for many, they’re cosigning loans for their kids or grandkids.
Unfortunately, as a result, an increasing number of people age 65 and up have defaulted on their federal student loans and now they’re finding their Social Security checks docked to repay the debt.
If you owe student loan debt — whether it’s your own or someone else’s — and you’re having trouble paying the loan, here’s information you should know from the Consumer Finance Protection Bureau (CFPB).
• Has your income dropped, such as due to retirement? If so and you’re struggling to make student loan payments, there may be help. You can request an Income-Driven Repayment Plan that resets your payment to your income. You will need to prove your income, with a tax return, or a pay stub or benefits check. Contact your loan servicer, or go to studentloans.gov, and
then click on “repayment and consolidation.”
• Are you a cosigner on a student loan or have you been asked to cosign? The CFPB reports that they’ve received complaints from cosigners who were told by the lenders that, after a certain number of payments, they’d be released from liability. Yet, although the payments were made, the release did not occur.
Keep in mind, before you cosign, you’re not just vouching for someone else’s ability to pay, you are actually taking full responsibility to make the payments yourself if the borrower doesn’t. And if the loan is private, you may not be eligible to discharge the loan.
If you do cosign, it’s a sweet deal for the person getting the loan. Your signature means he or she will likely get a better interest rate. But you shouldn’t consider cosigning unless you can afford to pay the loan yourself, because you may have to. Let’s say your grandson is the borrower and he ends up defaulting on the loan. Depending on the state you live in, the lender may be able to collect the full debt from you without even trying to collect from your grandson.
Or, suppose the loan is yours, and someone else cosigned for you. If the cosigner defaults on another loan, declares bankruptcy or dies, you may be judged in default on your student loan. The same is true if you cosign for someone else and you later declare bankruptcy. That could put the student loan into default.
If you’ve already cosigned and want information about getting released, go to cfpb.gov, and type “cosigner release” into the search window. You can also seek help by calling the CFPB at (855) 411-2372.
• Did you cosign a loan for someone (let’s say, your adult daughter) and you suspect she’s not making the payments? As cosigner, you can request access to the account. Contact the lender and ask. Better still, at the time of cosigning, request access. That way you have a better chance of protecting your credit in case your daughter claims to be making payments, but isn’t.
• Can your Social Security or Veterans Benefits be offset to pay a delinquent student loan? Older borrowers have been complaining to the CFPB about harassment from private lenders when loans are in default. The fact is, a private lender cannot take your benefits. But if the debt is owed to the U.S. government, they can indeed, garnish your benefits.
If a private lender or servicer is harassing you, submit a complaint to the CFPB, at https://consumerfinance.gov/complaint/
• What if you died or became disabled, with a balance remaining on your federal student loan? Who has to pay the loan? Your survivors will be happy to know the debt doesn’t transfer to another person. If you die, your relatives need to contact the loan servicer and provide a death certificate to get the loan cancelled.
If you become totally and permanently disabled, your federal student loan can often be discharged. You’ll need to contact the U.S. Department of Education website for details.