With the cost of education skyrocketing, more kids are turning to parents and grandparents to cosign on private student loans, leaving them liable for payments if the child cannot pay the loan, becomes disabled, or in the event of the borrower’s untimely death. Co-signors stepping up to the plate happens more often than one would think. The number of people over the age of 60 paying off student loan debt on behalf of a family member has quadrupled over the last decade.
If you are considering taking on the role of a co-signor to a student loan, borrowers should consider taking out life and disability insurance policies to financially protect relatives or friend cosigning on loans. Although federal student loans and a limited number of private student loans are forgiven if the borrower dies, for example, that is not the case with private loans which become due immediately upon the death for cosigners of the loan. Disability insurance works similarly by providing borrowers and their co-signors financial security if the borrower becomes incapacitated.
Of course, if a student is unable to pay because of under or unemployment, many protections kick in on federal loans which have income dependent and forbearance provisions built in. However, private loans do not offer the same protections and a cosigner is on the hook if their friend or family member loses their job or just is not taking the responsibility for repaying the loan.
Parents and grandparents can be placed in a precarious financial situation if they are already trying to make ends meet so it is important to follow up with the borrower periodically to make sure they are holding up. Perhaps the first line of defense for a cosigner is to see if the lender allows the borrower to request the removal of a cosigner after a year of full on time payments – taking a cosigner off the loan early-on in the repayment process.
Failing that, if you are in a difficult financial situation made worse by your responsibilities as a co-signor to a student loan, it is important to note that while student loans are not erased in a chapter 7 bankruptcy, other unsecured debt such as credit cards and medical bills are removed. Those who have assumed student loan debt as a cosigner can seek bankruptcy protection to reduce their bills so that they are in a better position to pay off this non-dischargeable debt.
If you have questions regarding bankruptcy and co-signors to student loans and how chapter 7 or 13 bankruptcy protection could help you, contact the Peoria Illinois law offices of Charles E. Covey for answers at 309-674-8125.