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The co-signer’s curse

Chris Farrell Dec 12, 2011

Question: I co-signed a friend’s private graduate student loans in 2005. She was an international student, which is why she needed the co-signer to get approved. In 2007, she had a stroke and moved home to Costa Rica. She hasn’t gotten a job and taken responsibility for paying the loans since then. I started paying the monthly payments in 2009, after getting threatening late notices from the loan company.

What should I do if I don’t want to keep paying these monthly payments on the loans? How can I get off of the loan agreement as a co-signer? Thank you!! Ryanne, Washington D.C. 

Answer: Ouch. That hurts. You’re on the hook for the loan repayment unless you can convince her to start paying for the student loan. Call it the curse of the co-signer. 

The basic problem is that the lender has no incentive or reason to let you off the hook. The lender wants its money back. And if you stop paying the loan because you’ve been treated unfairly by someone you tried to help, you’ll trash your credit report and credit score. (You’re not thinking about it, but just so you know, you can’t even discharge student loans in bankruptcy.) 

That said, there are ways student borrowers can release co-signers from their legal obligation. Among the critical requirements is that the student borrower demonstrate a steady pattern of on-time, over-time repayment. For instance, a student borrower can ask that the co-signer be dropped from the contract with giant student loan lender Sallie Mae after a list of requirements is met. You can read about it here

However, since your student borrower isn’t making payments, I don’t see any way for you to get out of making the payments. The lender has every incentive to keep you responsible for the tab. Sorry.

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