I Cosigned for a Student Loan a Decade Ago and Now They Want Me to Pay the Full Balance Due

Question:

Dear Steve,

Co-signed a student loan for someone back in 2009-2010 for about 25,000. Forgot all about the loan but got a letter from Transworld yesterday saying I need to pay $47,000 (interest 7.4%) within 30 days to dispute it or will be considered a valid debt. Currently, they are not reporting to credit bureaus. I feel like if I contact them they will start reporting.

If I do contact them would they take a settlement without putting a negative mark on my credit? What is the best way to attack this?

Bob

Answer:

Dear Bob,

If you did cosign for a student loan you agreed to be 100 percent responsible for the debt. Most people are confused and think when they cosign they are just helping someone they like to get approved for a loan. That’s not what cosigning is for.

It sounds like the person you tried to help has not made payments on the loan in some time. That would explain the large balance due.

Since you are a cosigner the loan has always been possible to report the loan on your credit. That remains a possibility moving forward as well.

Your best bet at this point may be to negotiate a cosigner release. You would have to pay about half the loan to get out of the debt. Only you can determine how much the release is worth to you. Once the release was agreed on, paid, and issued, then you would be totally off the hook for the remaining balance due.

Alternatively, you may want to explore if the debt can be verified at this point. If the lender can’t produce documentation and evidence you are the cosigner you could use that as a defense if you are sued by the lender. But the lack of a verification will not prevent them from trying to collect on the debt.

You can always sit back and wait to see what the collector does but you have no control over this situation if you are only waiting for the next shoe to drop.

The credit report notation is the lesser of the issues here. Getting off the hook as the cosigner is the primary thing that needs to be resolved.

You can either attempt to negotiate yourself, hire someone to represent you, or find an attorney who is licensed in your state to represent you in the inquiries or negotiations with the creditor.

Steve Rhode
Get Out of Debt GuyTwitter, G+, Facebook

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This article by Steve Rhode first appeared on Get Out of Debt Guy and was distributed by the Personal Finance Syndication Network.