Legal Issues when Cosigning on Student Loans
The statistics are startling: those aged 60 or older carry a combined $60 billion in student loan debt, and the problem only seems to be getting worse. A report from AARP found that the percentage of seniors with student loan debt jumped by more than 20% in every single state from 2016 to 2017. Florida ranked #2 in the nation, with a combined $7.1 billion in debt, an increase of almost 70%.
These loans are notoriously difficult to wipe out in bankruptcy, so seniors should carefully consider their options for repayment. And if you have not yet taken out student loans, analyze whether you want to take on the debt in the first place.
How Seniors Accumulate Student Loan Debt
Though some debt comes from a senior’s own education, the vast majority stems from people agreeing to act as cosigners on loans for their children and grandchildren. The average amount of debt is $23,500.
We understand why many people agree to help a loved one. The cost of education has skyrocketed over the past 30 years. According to one study, the cost of a public college education increased over 200% between 1988 and 2018. Watching children and grandchildren forego an education because it is too expensive is painful.
A parent or grandparent might think nothing of taking out a loan for a loved one, but these are tricky loans. Most must be paid back in 10 years. Even if government loans provide repayment options, all these options do is increase the amount of money a person must pay back over the life of the loan.
Seniors Are Threatening their Retirements
Many people 60 or older are living on fixed incomes or will soon be retiring. And this income is vulnerable if your loved one has a hard time repaying the debt.
Because you cosigned on the loan, the lender can look to you to make payment in the event of default, and they have tools for forcing you to cough up money. For example, AAA reports that your loan servicer can garnish your Social Security retirement payments if you cosigned on government-backed loans. Any garnishment radically reduces the amount of money you will have available to live on.
Another disastrous option is to think you will use a home mortgage or home equity line of credit to repay student loans. But these loans are secured by your property. If you can’t make payment, you could lose your home.
There is also no reason to assume that your loved one will be able to quickly repay the loan. The average salary for a recent college graduate is around $50,000, but that is an average. Many graduates will make less than that and some will only work freelance or be unemployed.
Should You Cosign?
This is an individualized decision. The key is to be very sure of your ability to cover the cost of the loan if your loved one cannot. This means looking at your own retirement goals and financial position. If you are not confident you can pay for the loans, you should probably decline. Your children and grandchildren have other options for paying for an education, such as going to a community college part-time or looking for an employer who will pay for college classes.
If you have a legal question about estate planning, we can help. Millhorn Elder Law Planning Group represents the men and women in the Villages with their legal needs. Please contact us today, 800-743-9732 , to schedule your consultation.