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Questions About Student Loan Refinancing Options

Stupidly co-signed for an irresponsible friend, now what?

A few years ago, I did something very stupid and co-signed a sizable student loan for a friend to go to school. He couldn’t get the loan on his own and I had good credit; he was supposed to be done with school in a year and would then be able to land a job making $80,000-100,000 annually, so he would be more than capable of paying it back. I was very hesitant to co-sign, but he literally had no one else that could help him out with this and really needed to finish his education.

Long story short, his “one year” of school turned into two and a half years, he ran out of money and still didn’t finish his degree. He was able to get the repayment on the loan deferred for 6 months (after the initial grace period expired) while he searched for a job and he has now joined the military. I made 2 payments on the loan while we were waiting for the deferment to go through in order to protect my own credit rating but now I am starting to get letters from the bank again because the deferment period is over and the first payment has not been paid. My friend is away at basic training, I have no way to get in touch with him other than wait for a letter to reach him (then his response to reach me) and the bank only wants to discuss when I will make a payment. I cannot really afford to make this payment right now, not to mention that this is HIS loan, not mine!

I understand that I did this to myself, but now I need to know if there is any way to get out of it. The bank says they will release me as a co-signer after he successfully makes 24 on-time payments but I do not want to wait two years to get out from under this loan. I have an excellent opportunity to buy a home and I’m afraid that the bank won’t approve a home loan with this guys debt hanging over my head. My friend had told me before he left for boot camp that he will get this loan set up for automatic withdrawal from his military pay and I wouldn’t need to worry about it after that, but he also said that he wasn’t going to be getting paid until after he completes his basic training.

Any help, information, suggestions, etc, would be welcomed. I know that this is the dumbest thing that I have ever done and I will NEVER get myself in this situation again!! I would be more than willing to pay to have this loan refinanced in order to get my name off of it for good, but does anyone know if that would even be an option?

Industry Expert answers:

Unfortunately, you are learning very expensive lesson. You have to make the payments to save your credit. By co-signing, you agreed to be responsible for this loan if he didn’t pay. I also seriously doubt that the bank will EVER let you off the hook.

The good news is that he joined the military. Wait till he gets thru boot camp so he doesn’t get thrown out. Then go after him thru his commanding officer — or better yet, allow the bank to go after him. It is very easy to locate and enforce debt payment.

Is it better to let my ex’s debt go to collections or pay it off myself?

I have a divorce decree where we agreed that my ex will refinance a student loan into just his name. The ex hasn’t refinanced and hasn’t made but 2 payments in 18 months and now the debt has been charged off by Sallie Mae. I understand a lot about credit and debt collection, but I am a little fuzzy when it comes to this specific
scenario. The ex obviously has no intention of repaying the debt. What are the worst-case scenarios as to how this will play out and what is my best course of action assuming that the ex has no intention of paying this bill ever? My assumption is that Sallie Mae will eventually sue both my ex and I individually in court. We will
each lose because we are both on the note. Sallie Mae will secure a judgment on each of us and then will start garnishing our wages. If
this happens, my question is can I sue my ex for the amount that is garnished from my wages because he was supposed to refinance that debt into his name according to the divorce decree? I realize that even if I CAN sue him and win, that I too will only receive a judgment and then will have to go about the business of collecting via wage garnishment or other method, but I’d like to know if that is even an option. The problem with that scenario is that it could take years for

Sallie Mae to obtain a judgment and years more to fully be repaid. By that time, a $5,000 balance could potentially reach $10,000 and my credit is tarnished until the entire thing is resolved and I can get the derogatory information removed from my credit report based on the divorce decree. As much as it pains me to think that the best option
would be to pay it off myself and completely relinquish him of his obligations, it is possible that it will cost me less in the long run and
help me clear up my credit a lot quicker and I can finally be done with all this nonsense. If I choose that path, will I win a court case where I
sue him for the debt that I paid on his behalf based on the divorce decree or will the judge simply say that I am a saint for paying off his
debt and I am eligible for no repayment? If I can get a judgment, I believe it would be in my best interest to do it now vs. waiting 4 or 5
years, possibly more. Does anyone have any professional insight into this situation? Your professional experience and advice is welcome and will be very appreciated.
I did try to file contempt of court and he showed up with a denial letter showing that he applied for a loan to refinance the debt and was turned down. Go figure, he makes 2 pmts in 18 months and gets denied for a loan. Then at the master’s hearing where we also negotiated child support, he asked the master if he paid off the student loan within 3 weeks, could he get a lower child support payment. To me that indicates that he is using the sallie mae debt as a bargaining chip, and has the ability to pay it off completely were he compelled to. The master’s hearing resulted in a denial of the contempt of court order. I guess I will have to consult a financial planner or a professional in the field of debt collection who can tell me what my worst-case scenarios are. It could be worse, it could be more than $5,000. Not so much money in the big scheme of things. You just hate to see a good-for-nothing a-hole get away with anything. Thanks for your help.

Industry Expert answers:

You need to speak to a fee only financial planner. Yahoo! Answers is a great place for ideas, but your situation requires the advice of an expert if you want to try to avoid costly mistakes.

In addition, you may want to consult a lawyer. I know the perceived costs involved may be daunting, but I think in your situation it’s better to pay a little bit now rather than let this spiral out of hand (do you have any idea how much a lawsuit costs?).

Good Luck!

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