Question:
Dear Steve,
My parents are signer and co-signer for a huge private student loan over $100,000 which was used to cover expenses for my ex-wife over 10 years ago. We since divorced and as part of our divorce agreement, we divided liabilities on her student debt and removed her name from some of the loans (the loan company then allowed us to do this). So the end result was that a loan amount of >$100,000 was the sole responsibility of my parents; we agreed at that time that I would help with the monthly payments which exceeded $1,000/month.
Shortly thereafter, I had employment problems and was unable to contribute much to the payments. My parents are retired (over 80 years old) and cannot contribute anything to the payments. So we went through a series of deferments but eventually we fell so far behind that the loan is now in default and the principle has increased to over $140,000. I've tried to negotiate a lower payment schedule many times but with no luck. I am not legally tied to this loan but, as mentioned above, I had agreed to pay the loan on behalf of my parents who are the only legally bound individuals to this debt.
I was wondering if there was any type of escape clause in our situation where the actual student who borrowed the money is no longer affiliated with the loan and the signer and co-signer are elderly with no means to pay the loan. Thanks in advance.
Gene
Answer:
Dear Gene,
I don't see how you could just toss them back like a hot potato. It appears you removed your ex-wife's name from the loan, and your parents either were left as co-signers or accepted full responsibility for the loan.
However, as you have learned, deferment is not a solution and just explodes the balances.
I'm not sure what the asset situation is for your parents, but if they are struggling, have little assets and are living off public benefits or a pension, then you might want to read Top 10 Reasons You Should Stop Paying Your Unaffordable Private Student Loan.
If you can't afford to repay the loans at this point, what you need is a strategy and not just a close them in the closet approach. That just makes things worse.
You also mentioned that the loans were used to cover expenses but I wonder if some of those were unqualified educational expenses. If so, that part of the debt could be discharged in a consumer bankruptcy by your parents. See this article for more on how and why.
While there might not be a magic "hand it back" wand, there are some options worth pursuing to ultimately deal with this.
Before I go, I wanted to leave you with three easy action items you can jump on right now to address your situation. Just click here.
If you have a credit or debt question you'd like to ask, just click here and ask away.
If you'd like to stay posted on all the latest get out of debt news and scam alerts, subscribe to my free newsletter.
This article by Steve Rhode first appeared on Get Out of Debt and was distributed by the Personal Finance Syndication Network.