Protecting Your Home: Risks of Co-Signing Student Loans for Loved Ones
In 2004, Sabrina Finch made the decision to return to school to pursue her dream of becoming a nurse. Her mother, Rebecca, was thrilled at the prospect of Sabrina finally embarking on a career path after years of struggling with low-wage jobs in fast-food restaurants and factories. When Sabrina took out a private student loan from Navient in 2007 to fund her nursing degree, Rebecca willingly agreed to co-sign the loan to support her daughter’s aspirations. However, both women would later come to regret that decision.
Sabrina, now 53 and residing in Vinton, Virginia, faced numerous challenges over the past two decades. Battling with resistance to treatments for her bipolar disorder, she found it increasingly difficult to maintain stable employment and stay on top of her bills. Eventually, in May, Navient granted Sabrina forgiveness on her private student loan after she demonstrated that her disability rendered her unable to work. However, the company then transferred the loan to her mother, Rebecca.
Rebecca, now 85 and dealing with her own health issues such as cardiovascular disease, constant pain from a fractured hip, and speech and cognitive impairments from several strokes, relies solely on her monthly Social Security benefit of roughly $1,650 to make ends meet. With a loan balance exceeding $31,000, Rebecca is unable to afford the monthly payments, leaving both her and Sabrina anxious about the potential loss of their home.
Paul Hartwick, vice president of corporate communications at Navient, explained that when a primary borrower is unable to make payments on a loan, the co-signer becomes liable for the account. This highlights the significant risks involved in co-signing private student loans, especially as the private student loan market continues to grow.
Private student loans have seen a surge in popularity, with the industry expanding by over 70% between 2010 and 2019, totaling $130 billion in debt. Unlike other forms of lending, private student loans often require a co-signer due to the student borrower’s limited credit history. This means that more than 90% of private student loans include a co-signer who shares equal financial and legal responsibility for the debt.
Hanneh Bareham, a student loans expert at Bankrate.com, emphasized that while co-signers can assist in securing approval or obtaining lower interest rates, the requirement for co-signers on private student loans poses financial risks with limited safeguards. According to higher education expert Mark Kantrowitz, nearly half of co-signers aged 50 and above end up making payments on the loan themselves, underscoring the intergenerational burden of student loan debt.
Anna Anderson, a staff attorney at the National Consumer Law Center, warned of the financial risks faced by co-signers of private student loans, citing the lack of guarantees regarding the student’s ability to graduate and repay the debt. With borrowers of private student loans often requiring a co-signer due to their unproven credit history, the implications of co-signing on student loans extend far beyond the initial agreement.
Unlike federal student loans, which offer avenues for debt forgiveness in cases of permanent disability or school fraud, private student loans present limited options for borrowers and co-signers. While the U.S. Department of Education forgives the debt of borrowers in such circumstances, private lenders like Navient are less likely to discharge the debt, leaving co-signers vulnerable to financial repercussions.
Carolina Rodriguez, director of the Education Debt Consumer Assistance Program in New York, highlighted the challenges faced by co-signers seeking relief from private student loan debts. With the rarity of co-signer release in practice, borrowers like Sabrina and Rebecca find themselves trapped in a cycle of debt with limited recourse for financial relief.
In Sabrina’s case, despite being approved for disability benefits through Social Security, her private student loan balance continued to grow, surpassing the initial amount borrowed. With an interest rate of 10% and monthly payments beyond Rebecca’s means, the looming threat of losing their home weighed heavily on both Sabrina and her mother.
The story of Kathleen Cullen and her father Ken further illustrates the risks associated with co-signing private student loans. Kathleen’s pursuit of a culinary education at a for-profit school led to mounting debt, exacerbated by the school’s failure to deliver on promised educational quality and employment prospects. Ken, a union electrician, co-signed Kathleen’s loan, only to face the repercussions of her limited earning potential and escalating debt burden.
As borrowers like Kathleen seek relief from fraudulent practices by for-profit schools, lenders like Navient often resist debt cancellation and co-signer release, prolonging the financial strain on families. Eileen Connor, director of litigation at The Project on Predatory Student Lending, emphasized the challenges faced by borrowers and co-signers in navigating the complex process of seeking debt forgiveness and financial relief.
The impact of co-signing student loans extends beyond financial burdens to strain relationships, jeopardize retirement savings, and threaten the security of family homes. With private student loan lenders employing aggressive collection tactics and limited options for debt relief, borrowers and co-signers are left vulnerable to long-term financial consequences.
In conclusion, the risks of co-signing student loans for loved ones are significant and far-reaching, underscoring the need for greater awareness of the implications and safeguards available to borrowers and co-signers. As the private student loan market continues to expand, it is crucial for individuals to consider the potential consequences of co-signing loans and explore alternative options for financing higher education. Through informed decision-making and proactive financial planning, families can protect themselves from the pitfalls of student loan debt and secure a more stable financial future.