Dear Liz: Our son went to an expensive private school and ended up with more than $100,000 in federal and private loans by the time he graduated. My wife cosigned a private loan for $25,000 for the first year, and that was the last we heard of any loans until he graduated with a degree in social services. After he was out of school for six months, we started getting phone calls asking for payment. Turns out he electronically signed my wife’s name to the next three years of his student loans.
Just to keep the creditors from harassing us daily, we pay the interest, which is about $1,100 a month and equals two-thirds of my wife’s take-home pay. (I’m disabled and can’t work; she’s 64 and planning to retire soon.) Our son hasn’t paid a dime on any of the debt and seems to think it will disappear if you don’t talk about it. He makes only $15 an hour. He still takes college classes and he thinks that because he is in school, he doesn’t need to pay anything. But the interest is still accruing monthly.
After my wife retires, how much of our Social Security checks can they come after? Can they come after our house? We will be living on Social Security only as we were never fortunate enough to have employers who offered pension plans. I sometimes feel that we will have no real retirement because of this situation. Any suggestions and advice would be appreciated.
Answer: What a mess. If nothing else, your situation can serve as a warning to other families tempted to buy educations they can’t afford. Taking on six-figure debt for an undergraduate degree, let alone one in social services, is nuts. Generally, students shouldn’t borrow more in total than they expect to earn the first year out of school. Also, most people should stick to federal student loans. Using private loans to pay for college is a lot like using credit cards, although unlike credit card debt, these variable-rate loans typically can’t be discharged in bankruptcy.
It’s not clear whether your son committed identity theft in signing your wife up for additional debt. Some private loans include a clause permitting the origination of subsequent years’ loans in addition to the original loan, said Mark Kantrowitz, publisher of Edvisors Network. You’d have to review the promissory note to see if that’s the case. If not and if your son forged your wife’s signature, she potentially could get released from the obligation — but most lenders will require the son to be convicted of identity theft first, Kantrowitz said.
“When given that choice,” he said, “most families choose to handle it internally rather than see the student convicted of fraud.”
The only good news here is that private student lenders have fewer powers to collect, compared with the federal government. There is a time limit on how long collectors can pursue you because private student loans are subject to each state’s statute of limitations on debt. (There is no statute of limitations on federal student loan debt, which means collectors can pursue borrowers indefinitely.) Private student lenders can file lawsuits against you, but they don’t have the power that federal student loan collectors have to withhold tax refunds and take a portion of Social Security checks.
If your only income in retirement is from Social Security and you don’t have any other property a creditor can legally take, you may be “judgment proof.” That doesn’t mean you can’t be sued, but a creditor wouldn’t be able to collect on a judgment against you. To find out whether that’s the case, talk to an experienced bankruptcy attorney familiar with the laws in your state.
None of this reduces your son’s responsibility for his debt. If collectors can’t come after you, they will start to pursue him in earnest for payment and he’ll learn just how wrong he is about student loan debt. But that’s his problem, and he at least has a working lifetime ahead of him to pay back what he borrowed.
How did the parents think that their son was paying for his last three years of school? They hadn’t “heard of any loans,” but they knew he was still enrolled in school, and they knew how much it cost, and this situation went on for three years. Did they not talk about it at all? Did they think that $75K just materialized out of nowhere? It sounds like they might have taken the same heads-in-the-sand attitude that their son is taking now.
None of this excuses what the son did. But when a 20-year-old kid (legally an adult, but in terms of experience in the world, he’s still a kid) is given free rein to go $100K into debt without even understanding what that means, that’s a problem with the system, not with the kid. Until the system is fixed, parents need to take every opportunity to act like the adults in the room that they are.
I think the point that they are making is that they didn’t know about any loans *they* were on the hook for – I’m sure they expected that he was taking some kind of student loans. (It’s possible he said it was grant money or some such, but that wouldn’t ring true if the first year required a 25k loan.)
The key here is that first loan was private, and co-signed. They knew they were taking on that debt, but didn’t know he had signed her name to the other loans.
There shouldn’t be any of this “not paying a dime” business. I hope that he and his parents go to a joint financial counseling session, work out his budget so that he can start helping to pay on the loans, with the understanding that he will be taking them over at a predetermined point in the future – and they make him stick to it.
And I hope he starts acting like the adult he is supposed to be.
I hope this helps some other parent take a look at the fine print before co-signing a student loan. I’d wager many don’t realize it’s possible to obligate yourself for much more than you think.
@Kaleey: So it would have been OK, in your book, for the parents to sit back and not say a word as their son dug himself a financial hole that will take him decades to climb out of, as long as the parents themselves aren’t on the hook for any of it? Sorry, but I disagree. Taking an interest in your child’s well being is part of being a parent.
Student loans these days are shark-infested waters. Parents owe it to their children AND themselves to understand what is going on, rather than remaining blissfully ignorant.