Get Out of Debt Guy

I Cosigned a Student Loan My Son Defaulted on. What Now?

Posted September 16, 2014

WRAL Reader Question

I cosigned for my son, Steven - a private loan for school at Hallmark Institute of Photography.

He defaulted. He has been paying back to a collection agency since August of this year - a total of over $5,000.00 - two initial payments of $1,200, then monthly $250.00. Can we convert this to a loan rehabilitation? How do I do that?

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I checked and Hallmark Institute of Photography is an accredited school so it is possible you actually have a student loan guaranteed by the government. Your comment about rehabilitation led me to suspect that is what you signed.

In that case it is actually good news. If it is a private student loan then the outlook is less favorable.

Keep this in mind for the future, when you cosign you assume 100 percent of the liability and receive none of the benefit. The role of the cosigners is not to help the other person but to be the person the creditors goes after if the loan defaults.

In the case of the federal loan the loan servicer should have told you about the ability to consolidate the loan out of default and begin an income based repayment plan based on your son's financial situation. See this article for specific advice on how to do that and what options you have.

With the current changes in government programs, and very flexible repayment options, there is almost no effective use of the old rehabilitation program anymore.

Steve

Steve Rhode
WRAL Get Out of Debt Guy

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About this Blog:

Steve Rhode has had careers in opthalmology, real estate and as the head of a nonprofit debt counseling firm. On his blog, he offers hard-won, free advice about getting out of debt, consolidation and making the right choices as you manage your money.