Mom, 85, surviving on Social Security is slapped with cash-strapped daughter’s $31K student debt because she co-signed a loan 20 years ago — now she’s afraid she may lose her house

The problem with co-signing a student loan

Any time you co-sign a loan, you take on the financial responsibility of repaying it. If the person you’re co-signing for stops paying their debt, the lender in question can turn to you for repayment instead.

An average of 8.15% of student loans are in default at any given time, says the Education Data Initiative. And since 2011, an annual average of 471,000 students have defaulted after their second year in repayment.

Meanwhile, LendingTree reports that 93.1% of private undergraduate student loans and 69.2% of private graduate loans had a co-signer for the 2023-2024 academic year. That’s troubling, because while federal student loans come with protections that include forbearance and deferment, private student loans don’t. Put another way, there’s generally less flexibility in repaying a private student loan — whether you’re the primary borrower or the co-signer.

Kiss your credit card debt goodbye

Millions of Americans are struggling to crawl out of debt in the face of record-high interest rates. A personal loan offers lower interest rates and fixed payments, making it a smart choice to consolidate high-interest credit card debt. It helps save money, simplifies payments, and accelerates debt payoff. Credible is a free online service that shows you the best lending options to pay off your credit card debt fast — and save a ton in interest.

Explore better rates

Can a lender actually take your house?

Circling back to the story above, there’s concern that 85-year-old Rebecca will lose her home if she doesn’t repay her daughter’s student loans. If you’re wondering whether that can actually happen, the answer is, maybe.

Student loans are typically unsecured debt, which means her lender can’t just take her home if she stops paying. But if she becomes delinquent and then defaults on the loan, Sabrina’s lender could sue Rebecca to place a lien on her home to repay the debt.

However, even if a lender is able to place a lien on a home, which would then technically give it the right to force a sale, the process of doing so could be costly and complicated. A more likely scenario is for the lender to wait for the house to be sold and then get repaid from the proceeds once that happens.

Now the good news is that Social Security benefits are generally protected from garnishment if you default on private student loans. However, those benefits can be garnished following a default on federal student loans.

So in Rebecca’s case, her primary income source is probably safe. But that doesn’t completely solve her problem. Her best bet is to apply to have her daughter’s student loans discharged on the basis of her not being able to make payments.

Private student loans are generally very difficult to get discharged. But in cases where the loan is truly not payable, there’s a smidge of hope that a lender might write off the debt rather than pursue it. That’s not something borrowers can count on, though, which is why you may want to think twice before agreeing to co-sign a student loan for a loved one.

Sabrina says she submitted the forms to have the loan discharged on her mother’s behalf on July 26 and is still waiting for her application to be processed.