My mom cosigned student loans for my now-disabled sister. How can we repay them?

Question: My mom cosigned my sister’s student loan for her online school, but life got in the way for my sister and because of her mental health (she’s now considered totally disabled), she was unable to make her payments. Then, the student loan company somehow changed the student loan to make my mother the primary owner of this debt, and my sister isn’t even on the student loan anymore. 

My father passed away a couple of years ago and my mother received money from his life insurance, but it wasn’t much. It saddens me that the only income left for her is being taken by a student loan company. Is there any advice I can give her to offer a glimmer of hope? I emailed a lawyer who said there’s not much that can be done as she was the cosigner and is as responsible for it. I find it appalling that there is no protection for her considering my mother doesn’t speak English, and she may not have been informed of the specifics with the loan considering it was all in English.

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Answer: Unfortunately, if your mother agreed to be a cosigner on the original loan, she agreed to legally repay it in the event that her daughter could not.  “If cosigners have difficulty meeting their student debt bill each month, they have only the options available from the private lender,” says Anna Helhoski, student loan expert at NerdWallet. That said, “some private lenders promise to discharge the debt if the primary borrower becomes totally and permanently disabled,” explains Andrew Pentis, certified student loans counselor and higher education finance expert at Student Loan Hero. But other private lenders may only do it, for example, if the primary borrower passes away. 

So what should your mom do now?  If she can’t make payments, pros say you should contact your student lender about negotiating new payment terms or temporarily lowering payments. “Otherwise, the only other options might be to try to settle the debt with the lender or pursue private student loan discharge via bankruptcy, which can be challenging and expensive,” says Helhoski.

But don’t despair, as this doesn’t mean your mother is without options. “If she’s on a limited income, it could be wise for her to set up a debt management plan with a nonprofit credit counseling agency. This way, she and her credit counselor could set up a three-to-five-year payoff of the loan, perhaps at a reduced interest rate and her counselor could mediate,” says Pentis. The National Foundation for Credit Counseling (NFCC) and the Financial Counseling Association of America (FCAA) both offer nationwide resources for nonprofit credit counseling.

Even before committing to such a plan, your mom can likely get a free consultation from a nonprofit agency that’s accredited by the NFCC.  For example, “at GreenPath [a financial wellness nonprofit], you can chat with a student loan counselor about all of your options and develop a customized plan, all without opening your wallet. If a more drastic strategy like filing for bankruptcy as a means of discharging the debt is needed, the counselor can offer a recommendation,” says Pentis.

Another option, if your mother is able to get a cosigner on the loan (she may need one), would be to refinance the loan at a lower rate with another private lender. “She could extend the loan term to keep her monthly payments low, though that would increase the overall cost of the loan due to accruing interest. The eligibility criteria of refinancing are quite stiff, so your mother or the cosigner would need strong credit to make up for limited cash flow,” says Pentis.