How Student Loan Co-signing Works

Defaulting on a Co-signed Loan

It's Common Sense 101: Pay back the money you've borrowed for college.
It's Common Sense 101: Pay back the money you've borrowed for college.

A number of things will happen to you and your co-signer should you default on your student loan, regardless if you finished college or not. Along with car repossessions and home foreclosures, a defaulted student loan is one of the most serious credit no-nos a person can make. Student loans -- both federal and private -- are, along with taxes and child support, nondischargeable, meaning that not even bankruptcy can get rid of the debt [source: Dugas].

If you and your co-signer go 270 days without making a payment, you're in default. The first thing you'll probably notice is the downgrade in your credit. Anyone who pulls your credit will immediately see the default, so you can forget buying a house, car or other big purchases on credit for at least the next seven years (the time it takes for bad debt to fall off your credit report). If you do manage to acquire some form of credit, you can count on paying exorbitant interest rates, often 40 percent or higher [source: Fragala].

Defaulting on your student loans can also affect your job search and living situation. Many employers check the credit of potential employees, and your default is going to stand out like a big, red "F" on a grade school test. The same is also true of rental agencies, so don't plan on moving anytime soon.

Collection agencies won't wait around for you to find the money for payments; they'll eventually take you to court. They can garnish your wages and put liens on your property, and the added litigation costs will be added to your debt, along with interest and penalties.

Of course, the same things happen to your co-signer, but collection agencies may pursue him or her more seriously, given that he or she probably has more means and assets than you do and is likelier to belatedly cough up the money for your education. It's doubtful that your co-signer is going to appreciate being put into this situation, and depending how late you are with your payments, his or her credit can still be ruined, even if he or she pays off the balance of your loan.

The good news, however, is that many lenders will allow you to apply for a delayed payment or forbearance -- minus interest -- on your loans if you're hard up. Even if you don't qualify, lenders may be willing to renegotiate payment terms with you so you don't go into default. But if your lender demands immediate payment, make sure your co-signer pays the bill. Both of you are legally responsible for the debt, and you'll share the consequences of delaying the payment.

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  • Campus Grotto. "Student Loan Cosigner." 2010. (Jan. 19, 2010).
  • Dugas, Christine. "Graduates Saddled with Debt, Student Loans Can't Easily Turn to Bankruptcy." USA Today. May 19, 2009. (Jan. 21, 2010).
  • Fragala, Tom. "Credit Card Interest Rates and Universal Default." Credit FYI. 2009. (Jan. 19, 2010).
  • GoCollege. "Serious Business: Defaulting on a Student Loan." 2010. (Jan. 19, 2010).
  • Rowland, Mary. "Why You Should Never Co-sign a Loan." MSN. 2010. (Jan. 22, 2010).
  • SallieMay. "Cosigning a Student Loan." 2010. (Jan. 22, 2010).