Co-signing a loan is a big deal. For a student, having you co-sign can open doors, often leading to a much lower interest rate or approval for a loan they couldn’t get on their own. As the co-signer, you might even see a small boost to your credit by being on an account that’s paid on time. But dealing with private student loan debt can be a serious challenge for some people. If you are a co-signer and have concerns about the borrower’s ability to make each payment, you have every right to be worried.
It can be a difficult position, watching the primary borrower struggle with their finances. You are likely wondering about your own liability and asking yourself, “Can I actually be sued for this student debt?” The short answer is a hard yes. Let’s break down exactly what that means for you.
What Happens if the Primary Borrower Misses a Payment on a Private Student Loan?
The Lender Expects You to Pay Instead.
When you co-signed that private student loan, you signed a legally binding contract. This contract makes you equally responsible for the entire loan amount. In the eyes of the law, the debt is just as much yours as it is the student’s. This concept is called “joint and several liability.” It gives the lender the right to pursue the full payment from either the primary borrower or you.
They don’t have to try to get the money from the student first. If a payment is missed, the lender can immediately contact you and demand the funds. They can also report the late payment to the credit bureaus for both of you. This means a single missed payment can directly damage your credit score, potentially affecting your ability to get a future mortgage or even a new credit card.
Yes, You Absolutely Can Be Sued for the Debt, and Lenders Are Very Willing to Do So
When the student loan account goes into default, usually after a few missed payments, the lender’s collection efforts ramp up. They will call and send letters to both you and the primary borrower. If those attempts fail to get the account current, the lender can file a lawsuit against you, the primary borrower, or both of you simultaneously. You signed the contract, and that makes you a target.
If you are served with a lawsuit, you will receive official court documents. Ignoring these papers is the worst thing you could do. If you fail to respond, the lender will likely win a default judgment against you. This court order gives them powerful tools to collect the money. They can then pursue actions like garnishing your wages directly from your employer, freezing and seizing money from your bank accounts, or even placing a lien on your property. This can turn a student debt problem into a full-blown financial crisis for you.
Before You Co-Sign, It Is In Your Best Interest to Read the Fine Print and Ask the Tough Questions
Signing a loan document without reading it is like handing someone a blank check. Before you put your name on any private student loan contract, you need to read every single line. Look for a “co-signer release” clause. This provision allows you to be removed from the loan after the primary borrower makes a certain number of on-time payments and meets specific income requirements. Not all loans have this, so you need to check.
Have a very direct conversation with the student about their financial plans. What is their expected income after graduation? What does their proposed budget look like? Do they have a clear repayment plan in place? You should also review your own financial situation. Can your budget handle the full student loan payment if you had to take it over? If the answer is no, or even a hesitant maybe, co-signing is a risk you may not want to take. Your financial health and credit score are on the line.
There Are Other Serious Responsibilities and Financial Risks You Take on When Co-Signing
The potential for a lawsuit is a huge risk, but it’s not the only one. The full private student loan amount will appear on your credit report as your own debt. This increases your debt-to-income ratio (DTI), which is a key number lenders look at when you apply for new credit.
Even if every payment is made on time, this added debt could make it harder for you to:
- Get a mortgage or refinance your current one.
- Be approved for a car loan.
- Open a new credit card with a favorable interest rate.
The debt becomes a factor in your major life purchases. You also need to consider worst-case scenarios. Some private loan contracts state that the entire balance becomes due immediately upon the death of the primary borrower, leaving the co-signer responsible. While some lenders offer forgiveness, others will come to you for the full amount.
Are There Any Viable Options if You Are Already a Co-Signer and Are Worried About Default or an Impending Lawsuit?
If you’re already on the hook and concerned about the borrower’s ability to pay, you do have a few avenues to explore. The first is to check the contract for the co-signer release option. If the borrower meets the qualifications, applying for your release is the cleanest way to remove your liability.
Another path is for the primary borrower to pursue refinancing. This involves them taking out a new private student loan in their name alone to pay off the old co-signed one. They will need a strong enough credit score and income to qualify on their own, but it’s a solid solution.
For situations where payments are becoming unmanageable, you or the borrower can contact the lender to discuss options like a temporary forbearance or even speak with a lawyer about a debt settlement plan. Be cautious with forbearance, as interest often continues to accumulate and is added to the principal balance, making the student debt even larger over time.
Manage Your Private Student Loan Debt With McCarthy Law
Whether you are the primary borrower or the co-signer on a private student loan, facing unmanageable student debt can feel isolating. At McCarthy Law, our team helps people who are struggling with consumer debt find accurate and effective solutions. Armed with a powerful debt settlement process, we can work with you to examine the specifics of your loan, explain the legal implications, and outline a clear path forward for your situation.