You helped a loved one through school but now they can’t repay that student loan you cosigned. What steps can you take to keep that student debt from ruining your retirement?

Federal student loans come with many options to make payments lower during lean times and defaults can be cured with numerous plans by resuming payments. Private loans, however, are issued by banks and lending companies without such helpful features.

Why should this matter?

If you cosigned on a private loan for a loved one, you are on the hook for the payments if they fail to make them on time, and the loan could go into default without you being notified. The lender does not owe you the courtesy of notice if payments are missed. You must inquire on your own from time to time.

If a single payment is missed, a loan like this goes into default status. Your credit could be harmed by missed payments and they could start sending you collection notices and calls. If the loan remains in default, the lender can file a lawsuit and demand payment of the balance in full. If they are awarded a summary judgement, they will attempt to garnish wages or attach property from your loved one, but if they do not satisfy the amount due, they will apply these measures to you, the cosigner.

According to recent surveys, 35% of cosigners regret offering to place their own financial future on the line for these loans for family. If you have not yet cosigned for a student loan, perhaps you’ll want to think twice before doing so. Your loving act of cosigning to further the future of a relative should not come with added worry for your own financial future.

Can Your Retirement Nest Egg Be at Risk?

It depends. Most employer sponsored retirement plans are protected from creditors, but that protection can vary based on the type of creditor and the state where you live. The same goes for IRA accounts, although under a different law. But other accounts in your name could be raided to make the lender whole.

To be sure, ask a local attorney familiar with these protection nuances.

What Can You Do?

If you find yourself in this position, some law firms and loan experts specialize in untangling problems for cosigners and borrowers of private loans. They will discuss the loan details and possible settlement outcomes at a reduced balance. Based upon the age of the loan, any upcoming statute of limitations, and any other weaknesses affecting the enforcement of the loan, the lender may be in a spot where they would accept less than the full amount. Paying this reduced balance with a new loan could be the viable solution you are looking for.

To learn if you qualify for such an arrangement, you can call the Private Student Loan Helpline at 888-669-1064. The helpline, created by CareConnect USA, is serviced by attorneys and student loan experts, and all calls are free. Some settlements can be arranged where the cosigner is freed from the loan. It depends on your lender and the severity of the default.

What About Bankruptcy?

In some cases, bankruptcy can help borrowers and cosigners avoid attachment of assets and wage garnishment.

Although student loan debt is still rarely dischargeable in bankruptcy, it could bring relief in other forms. A Chapter 7 bankruptcy could wipe out all other unsecured debt, making remaining student loan payments more affordable. A Chapter 13 bankruptcy will force a lender to accept a pay plan that the borrower can afford. It can also buy time to ride out the statute of limitations if the expiration is coming soon.

Some bankruptcy lawyers have special training to deal with student loans.

An Ounce of Prevention Is Worth a Pound of Cure

No doubt, if you are contemplating cosigning on a private student loan for a loved one, be sure that you have exhausted all other options. Some call these types of loans evil. If you are already entangled by them, seek some guidance and learn about your options.

• What To Know Before Cosigning a Student Loan
• Could Paying for Kids’ College Hurt Your Retirement?
• Could Debts Ruin Your Retirement?

Reviewed December 2023