Like a lot of parents, I co-signed a student loan for my 18-year-old daughter when she started college this past August. In October, I found out that she stopped going to class and no longer worked on any assignments. She moved out of the dorm and in with a girlfriend.
Now she has $20,000 student loan debt and no job. She is supposedly looking for a retail job at the moment. When her loan goes into repayment status and she doesn't make the payments, I assume that I will be held responsible.
I'm disabled and live on Social Security Disability. I'm not able to repay her loans. Should I take her to court if it comes down to her not paying on the loan?
-A.
Dear A.,
Unfortunately, 18-year-olds don't always make the wisest decisions. That's one reason student loans get messy so quickly. When you're barely an adult, it's tough to fully appreciate the long-term consequences your decisions will have not only on your own finances, but often someone else's.
I'm afraid that you're correct that you'll be held responsible for your daughter's student loan. When you agreed to co-sign, you became just as liable for that debt as your daughter. And it's also likely that a lender would come after you for it first. You may not have much income, but you still have more than your daughter.
Since you co-signed, I'm assuming these are private student loans. (Federal student loans typically don't require a co-signer.) That makes this situation even tougher, since your options are far more limited with a private lender compared with the federal government.
You'd need to talk to an attorney who specializes in contract law to determine whether suing your daughter would be an option. However, even if you could take her to court, I don't think this is the route you should take. Suppose you won a judgment against your daughter. It's pretty much meaningless if she doesn't have any money for you to collect. Meanwhile, you're still on the hook for payments with the lender.
I'd be furious with your daughter if I were in your situation. But realistically, you're probably not going to get anywhere with your daughter if you're starting out from a place of anger. Make it clear to her just how dire her actions could be to your finances. Tell your daughter that her loan payments could leave you unable to afford basic expenses and that her decisions could destroy your credit.
Try not to focus on any disappointment you feel about her decision to drop out of school here. The goal here is to get her to help out with payments. Given the worker shortages we hear about every day, your daughter should be able to find an entry-level position if she's actually searching.
You could offer to let her move back in with you so she can start making a dent in that $20,000 loan balance. That may not appeal to her at first. But I'm guessing that with no job or income, she'll wear out her welcome fast with her girlfriend.
Meanwhile, you need to contact the lender and discuss your options. Be prepared to provide documentation showing that you have little income and are on disability. While a private lender isn't required to make accommodations, they may be willing to do so if you can prove your inability to pay. Getting something is usually better than nothing, especially if they can avoid the time and expense of taking you to court. The National Consumer Law Center's Student Loan Borrower Assistance program is a good resource for understanding your options.
If all else fails, I'd suggest contacting an attorney about whether it's possible to get this debt discharged. Student loan debt is rarely dischargeable, even in bankruptcy. But it is possible in some cases if you can prove undue hardship, typically due to a disability.
You can't undo this decision. But what you can do is learn from it. Unless you can afford to take over payments, under no circumstances can you afford to co-sign a loan.
Robin Hartill is a certified financial planner and a senior writer at The Penny Hoarder. Send your tricky money questions to [email protected].
This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.
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