college

Is co-signer's estate liable for loan?

Don TaylorQuestionDear Dr. Don,
While my son was attending college several years ago, we (my husband's signature) co-signed a student loan for $11,000 (Sallie Mae). The payoff is now at $17,000. My husband passed away three years ago. I have two questions:

  1. Am I legally responsible for the loan in case of default?
  2. I want to pay off the loan before it gets any higher. Since it is a student loan, can I deduct it from my taxes?
-- Kathy Compounds

AnswerDear Kathy,
With your son's permission, I contacted Sallie Mae for help in answering your questions about his student loans. Patricia Nash Christel, managing director of corporate communications at Sallie Mae, assisted me in framing this reply.

She told me that Sallie Mae's current policy is to not seek repayment of the loan from the estate of a co-signer. You are not legally responsible for your son's loan payments. You can choose to help him with the payments, but it's voluntary on your part.

Your son may be able to deduct the student loan interest on his taxes if he is below the maximum income limits and meets any other requirements, but the help you provide doesn't garner you a tax deduction -- just him. Internal Revenue Service Publication 970, "Tax Benefits for Education" explains the IRS tax rules on deductibility of student loan interest.

Your son had a follow-up question about whether an individual working in law enforcement would qualify for any form of loan forgiveness on his student loan. Christel provided an assist with this question as well. "Congress has created a public service loan forgiveness program for certain federal student loans, but it applies only to direct federal student loans (not private). If he also has federal student loans from another lender and is working in a public service position (law enforcement may fit the criteria), he should definitely explore the income-based repayment option and public service loan forgiveness program." More details are available in the Sallie Mae Web publication, "Loan Forgiveness for Public Service."

Christel also wants your son to know, "As is always our policy, if a customer has financial difficulty we want to hear from him. Sallie Mae has a customer advocate group that works with customers experiencing tough times and helps to find an individual solution. Our trained staff work closely with the customer to learn more about their income and other obligations to help them find ways to make payments, perhaps on a different payment plan. I asked our customer advocate office to reach out to (the son) to see if they can answer any questions or assist further."

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