debt

Be a loan co-signer and it's your debt, too

Steve BucciQuestionDear Debt Adviser,
My question is about co-signing a student loan. My mother co-signed a loan for my then-boyfriend, and she did it with the assumption that he was going to go to college the next semester and use the money for school.

After the student loan went through and he received the money, we broke up, and he did not go to school and has not been back to school since. This was two years ago, and he has used up all of the money for everything but school or school-related expenses. He has deferred the loan, and then paid it for a while, and then deferred it again. My mother and I want to know if there is any way to get off the loan since this person did not use it for the purpose it was intended and has not kept up with the payments. In fact, if he does not pay in the next week, it will begin to affect my mother's credit.

If we get him to sign a piece of paper saying that he agrees to pay for 24 consecutive months in order to let my mom off the loan as a co-signer and he does not follow through, could we get out of the loan? Thank you.
-- Isabel

AnswerDear Isabel,
What were you thinking? My advice has always been that co-signing a loan is a financial catastrophe waiting to happen and it is now happening to your mother. For my readers out there who don't want to learn things the hard way, pay attention and you can learn something from Isabel and her mom's experience. It is every nurturer's instinct to help those around them when he or she can. But, the help should never come at the expense of the nurturer's own financial well-being.

As far as getting your mom out of the loan, some student loans allow for a co-signer to be removed after 24 consecutive payments. But your ex-boyfriend will have to decide that he wants to become solely responsible for the loan, make the necessary 24 consecutive, on-time monthly payments (as long as this is included in the terms of the loan) and request that your mother be removed as a co-signer. Otherwise, she is stuck with financial responsibility for the loan. These loans are very rarely eligible for bankruptcy protection.

With virtually no leverage over your ex-boyfriend, I would not wait for him to take over sole responsibility. Instead, I believe you and your mother need to decide how you will handle things should he stop making payments. It is important to agree on a course of action before any default takes place. If he makes his payments, your talk will not be wasted. There is a valuable lesson here for both of you. If he defaults and you need to make up the payment, agreeing to a course of action in advance will help to avoid making a decision under pressure and may save you from damaging your relationship with your mother.

I'd ask your mom to keep a close watch on the situation. To avoid negatively affecting her credit and to keep the 24 consecutive payments going, your mother will need to make any payment that your ex-boyfriend does not make before the payment is 30 days late.

If you or your mother has the money to pay off the loan, it might be worth it to do so and have the ex repay you directly. Then, your mom will not have to worry about her credit or keep up with the ex's payment history. You both can consider this a hard lesson learned. Lastly, if he defaults on his payment to her, then you should pay her back when you are able.

Good luck!

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