Default or worse can push relatives into avoidable debt
Individual borrowers who take out or cosign on student loans can get them wiped away in some circumstances, but it’s not easy and can be an uphill battle.
College finance expert Kristina Ellis told The College Fix that, for one, the chances of students actually getting their debt forgiven is slim.
“To qualify, you have to meet certain, very specific requirements,” Ellis, a commentator with Ramsey Solutions, stated in her email through a media representative.
Additionally, “by cosigning on a loan, you are only hurting yourself (and your student) by keeping debt on the table,” Ellis wrote.
“So many people are fed the lie that student loans are the only way to pay for college,” Ellis stated. That, however, is far from the truth, she added.
“Student loan debt isn’t as easy as the banks and schools sell it; there’s a lot that comes with it,” she told The Fix.
One mom reportedly learned that lesson tragically during her quest to get a private loan forgiven after the death of her son. Lynda Swearingen cosigned on her son Zachary’s loan, but he later died, leaving her to deal with the loss of her son and tens of thousands in student loans, WTHR reported earlier this month.
While the federal government’s Sallie Mae forgave the remaining balance of his government loans, she had to fight with the credit union who held the other cosigned debt.
Elements Financial, the credit union that granted him more than $30,000 in additional college funds, held Swearingen responsible for the balance.
A federal law passed in November 2018 mandated that student loan cosigners must be released from their obligation following the student’s death.
“The holder of a private education loan, when notified of the death of a student obligor, shall release within a reasonable timeframe any cosigner from the obligations of the cosigner under the private education loan,” according to the law.
Swearingen had to advocate for the loans to be wiped away because she had signed prior to the new law going into effect and the credit union classified it as an open line of credit.
After years of fighting Elements Financial and pressure from the local news station, the credit union agreed to forgive Swearingen’s debt and informed her that they would change their policy moving forward, WTHR reported.
The Fix reached out to Elements Financial through their website on July 12 to ask about the change in cosigner release policy but has not received a response.
Student loan co-signers face big risks, student lending expert says
Co-signers face the risk of absorbing the payments, so parents and others should consider what that means before signing onto them, one finance executive told Forbes in 2020.
Alyssa Schaefer, with the student loan platform Laurel Road, said there’s several possible repercussions of cosigning a loan.
“As a co-signer, the biggest risk of co-signing a student loan is that you’re relinquishing control of your credit rating to the student borrower,” Schaefer stated.
“Any missed payments can hurt your credit and can even cause collectors to come after you if payments are repeatedly missed,” she told the business magazine. “In the worst-case scenario, co-signing a loan could mean you’re responsible in the instance of the student borrower’s death or disability.”