‘My daughter continues to ignore her responsibility to make payments.’ I cosigned student loans for her, but am now disabled with limited income. Can I get out of this loan?

Question: I cosigned on a private student loan for my daughter in 2006. Soon afterwards my health deteriorated, and I was granted disability benefits retroactively back to June 2006. I have not worked since June 2006, and my only income comes from my Social Security disability benefits and my retirement pension benefits as I was a federal employee. Both agencies (Social Security & U.S. Office of Personnel Management) deemed me to be disabled.

Unfortunately, my daughter has ignored, and continues to ignore, her responsibility to make the payments on this loan, and they are now coming to me for payment. I was able to make a few payments on the loan, but am no longer capable of making any kind of payment. I have explained to the bank that I am on a limited income due to disability, but they continue to call me seeking payment and I keep explaining that I can’t send them something I don’t have. Is there any way that I can be removed from this loan, or do you have any other advice for me? 

Answer: Generally speaking, when you cosign a loan like this, each cosigner is liable for the full amount of the loan. To see how you might be able to be released as a cosigner, “obtain a copy of the loan’s promissory note. This is the document that lays out the terms and conditions of the loan and should include the provisions for a cosigner release. In most cases, the lender requires that the loan be current, among other things, before granting cosigner release, but it’s still worth exploring,” says financial adviser Zack Hubbard of Greenspring Advisors. 

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Typically, a cosigner release requires the primary borrower to sign off on releasing the cosigner, and the lender must also approve the removal of the cosigner, which can only be done if the borrower demonstrates they’re able to make payments. You should also check the terms of your loan to see if there are any provisions for disability. It may be that only the primary borrower’s total and permanent disability will allow for forgiveness, but read the fine print to see.

Unfortunately, there’s often no easy way out here as you’ve cosigned the loan which therefore makes you responsible for paying it off. “Your daughter is the key to the solution. You should continue to try to get her to communicate with the lender to come up with some type of repayment plan,” says certified financial planner John M. Piershale.  Adds Anna Helhoski, student loan expert at NerdWallet. “If your primary borrower refuses to repay the debt you’ve cosigned and you’re also unable to make a payment, your only option may be negotiating with the lender. If your lender refuses to comply, make a complaint with the Consumer Financial Protection Bureau. While you negotiate, try to pay at least the minimum monthly payment to keep your loan in good standing.”

Consulting an attorney and discharging student loans in bankruptcy

Matthew Jenkins, certified financial planner at Noble Hill Planning, says this situation likely requires an attorney. “It’s possible for your daughter to remove you as cosigner, but that would require your daughter to refinance the loan and that doesn’t seem likely in this case. As this is a private loan, you also have the option to remove yourself as cosigner through the bankruptcy process, but that is a long, complicated and expensive endeavor and there’s no guarantee that a judge will agree with your viewpoint,” says Jenkins. 

Still, it might be worth consulting with a bankruptcy attorney. “to see if they can help get you discharged from the loan on the grounds of your disability,” says certified financial planner Lisa Weil. Since you’ve already qualified for Social Security disability benefits, this is an indication that you’re indeed battling a serious disability and that your resources are already quite limited — which may help you qualify to get loans discharged in bankruptcy (though note this is tough to do). 

“Regrettably, this kind of scenario is not at all that uncommon and while I realize this particular ship has already sailed, this is the reason why I’d try to dissuade any client nearing retirement from cosigning a loan like this,” says Weil. But there is one incredibly positive thing to note, according to Piershale, is that your Social Security benefits may not be eligible for garnishment with private student loans the way they would be with a federal student loan.