The Unique Risk of Student Loan Cosigning
Student loans are the riskiest type of debt to cosign for two reasons: the amounts are typically large ($20,000-200,000+), and student loans are extremely difficult to discharge in bankruptcy. Unlike credit card or auto loan debt, you generally can't escape student loan liability through bankruptcy -- neither the borrower nor the cosigner.
Private student loans (not federal) are the ones that require cosigners. Approximately 90% of private student loans involve a cosigner. If the borrower defaults, the cosigner is pursued for the full balance, which may have grown substantially with interest since disbursement.
Cosigner Release for Student Loans
Most private student loan lenders offer cosigner release programs, but the requirements are strict: typically 24-48 consecutive on-time payments, a credit check showing the primary borrower qualifies independently, and sometimes a minimum income threshold. Approval rates are low -- some lenders deny 90%+ of cosigner release applications.
If cosigner release is denied, the alternatives are: having the borrower refinance (several lenders specialize in this), continuing to make payments until the loan is paid off, or if you're in financial distress, exploring whether the loan might qualify for the Brunner test hardship discharge.
What Happens When the Borrower Defaults
If the borrower defaults on a private student loan, the lender can: demand the full balance from you immediately (acceleration clause), sue you for the full amount, garnish your wages (after obtaining a judgment), damage your credit (the default appears on your credit report too). You have no right to the borrower's diploma or degree, and you generally can't force the borrower to pay.
Your right of subrogation (the right to sue the borrower for what you paid) exists in theory but is often worthless if the borrower lacks income and assets. Many parent cosigners end up paying their children's student loans for years or decades.
Frequently Asked Questions
Are federal student loans cosigned?
No. Federal student loans (Stafford, Direct, PLUS) are made by the federal government and don't require cosigners. Only private student loans (from banks and private lenders) require cosigners. If you cosigned an education loan, it's a private loan.
Can I discharge a cosigned student loan in bankruptcy?
It's very difficult but not impossible. Under the Brunner test, you must prove that paying the loan would impose 'undue hardship.' Courts rarely grant this discharge, but it's worth exploring with a bankruptcy attorney if you're facing genuine financial hardship from a cosigned student loan.
What if the student loan borrower dies?
Under federal law, federal student loans are discharged upon the borrower's death. For private loans, policies vary by lender. Some lenders discharge the debt upon the borrower's death; others pursue the cosigner for the remaining balance. Check your specific loan agreement.
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