What to do When the Primary Signer Defaults on a Student Loan

Agreeing to be a cosigner for a student loan is a huge responsibility. Hopefully, if you have already cosigned for a loan you did it with someone you trust. Open communication is crucial when agreeing to cosign for a loan. However, sometimes payments don’t get made and as the cosigner, you may not know what’s happening until it’s too late and you are dealing with a loan default.

The Road to Loan Default

First, let’s talk about what it means to default on a student loan. When the primary signer misses a payment, the loan is considered delinquent. During the delinquency it’s crucial to keep communicating with your lender. If help is sought in the early stages of delinquency there may be options such as deferment or forbearance to assist borrowers. However, if payments continue to be missed and the delinquency goes on for many weeks the loan defaults.

Repercussions of a Defaulted Loan

Once a loan has defaulted, borrowers will be immediately responsible for the entire amount of the loan including all accrued interest. A defaulted loan is no longer eligible for deferment, forbearance, or repayment plans. The loan will be shifted to a collections agency and the default will be noted on the borrowers’ credit scores. Collection agencies will then use other means to recoup the money including garnishing wages, repossessing vehicles, and even putting a lien on your home. Because students typically don’t have as many assets as the cosigner, it’s more likely that you as the cosigner will feel the impact.

Communicate With the Primary Signer

Now that you know what happens when a student loan defaults, talking to the primary signer is critical. Discuss what the defaulted loan means for you and them. Remind them of their responsibility. Together, create a plan for how you will pay off the loan in full.

Consider Your Options

There’s no easy way of dealing with a defaulted loan. Most of the simple solutions happen long before a loan has even become delinquent. Nevertheless, let’s talk about a few options for you to consider.

• Contact the lender – It’s unlikely that the lender will be able to provide many options once the loan has defaulted, but it’s still worth contacting them to see if they can do anything to help. At HESAA, we have resources for those that are having trouble making payments on our supplemental loans.
• Primary signer takes out a third party loan – While the chances of them finding a lender are slim, the primary signer may be able to take out a third party loan large enough to pay off the student loan (remember that once a student loan is defaulted borrowers owe the entire amount of the loan plus interest immediately). This would completely absolve you of any further responsibility for the student loan.
• You take out a third party loan – If the primary signer does not qualify or is unwilling to take out a third party loan, this may be your best option if you don’t have the savings to pay the full amount of the student loan upfront. A third party loan is likely to have a high interest rate but would allow you to make payments.
• Contact friends and family – See if any friends and family would be willing to make a financial contribution to help pay off the student loan. If enough people help out it could make the amount you have to pay attainable without needing a third party loan.
• Talk with a financial planner – A financial planner won’t make the student loan responsibility go away but he/she may be able to help you find the best way to pay off the loan and to start the process of getting your credit score and personal finances back to where they need to be.

Hopefully, as a cosigner you understood that there was the possibility that you would be responsible for either partially or entirely paying off this loan, and as such you have sufficient funds in place to do so. If not, we hope that this article will help you consider what other options are available to you.