In today’s world, everyone is expected to attend college and emerge with a degree that will help them find a job. Even the most entry level jobs require workers to have a college degree, regardless of whether it helps them perform the work better. Advanced education means high bills, requiring most students to take out student loans for substantial amounts. Trying to pay back these loans can push many people into bankruptcy, and the financial crisis connected with student loan debt is known around the country.

For obvious reasons, the focus of the debate and measures to help individuals escape this crushing burden is on the borrowers, but another group is also greatly affected – the student borrower’s parents. Because student federal loan limits are insufficient to cover the tuition and housing fees at many universities, federal parent loans and private loans must be used to supplement the difference. This reality forces many parents to take on their own debt and cosign for the child’s debt. What happens, though, when the child stops paying the loans or falls behind? Furthermore, how do parents absorb these new obligations that impact their ability to stay on track for retirement? Parents must often pick up the slack to avoid their own credit issues, but may do so at the expense of their financial security. How to respond when paying for the child’s student loan debt becomes too much for the parent, including whether bankruptcy is available to relieve the obligation, will be explored below.

What Does it Mean to Co-Sign a Loan?

When children go to college, parents are focused on helping them through the experience, even if that means taking on extra debt. This debt is seen as a means to an end, and the long-term implications of how the parent will repay the money is not always adequately addressed. Parents may not understand the consequences of co-signing for a loan. Co-signing a loan is not merely agreeing to help the child borrower if he/she has difficulty repaying the loan. Rather, the co-signer assumes the same liability and obligation to make sure the debt is paid. Thus, if the child falls behind, the lender will come to the parent to cover the deficiency and require them to be equally responsible for repaying the loan. For those with just 10 to 15 working years left, this burden can prove too much.

Is Bankruptcy an Option?

When debt becomes overwhelming, bankruptcy is an option people consider to find relief. Chapter 7 bankruptcy is the type used to handle consumer debt, which includes student loans. Chapter 7 allows debtors to discharge or eliminate debt without having to repay any of the outstanding balance. However, the trend is to allow the discharge of co-signers for student loans to hold them to the same standard as the main borrower. This means the debtor parent will need to prove undue hardship, just as the student would. Importantly, the bankruptcy court will look at the test as it applies to the parent, not the child. Undue hardship requires the debtor to demonstrate that he or she is living in poverty, make a good faith effort to repay the loan, and that the current situation is expected to last for some time. In addition, the co-signer will not be relieved of his or her obligation for the debt just because the child obtains a discharge.

The law related to student loan debt is complex, and given the stakes, especially for parents who will not have the time to financially recover, working with a bankruptcy attorney is critical to exercising all available options.

Get Legal Advice

Student loan debt adds up before you truly realize how much must be repaid. If you are struggling to handle these loans, talk to Christopher L. Arrington, P.C. about your options for bankruptcy. Bankruptcy may offer the fresh start you need, and an experienced bankruptcy attorney can take advantage of all the relief the law allows. Contact the Danville law firm to schedule an appointment.