I co-signed student loans for my son, but he dropped out. What should I do?

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Question: I just finished paying my credit card. I’m 56 and shouldn’t be in debt. My hopes and dreams for my son were strong, and I was fine with co-signing his school loans as I did the same for his sister. She is almost paid off on her loans but something happened with him and he dropped out of school. I now have $50,000 in school loans to pay. I arranged with Sallie Mae to pay almost $700/month on loans, but last month my freelance billing was only $175. I’m sick thinking I’m probably going to die in debt. It hurts even more to have lost my son to this too. I would like to retire one day, I hope that a miracle solution will solve this for me. Please help.

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Responnse: Parents are increasingly feeling the burden of the debts they have incurred for their children: total Parent PLUS loans now exceed $103 billion. And a recent NerdWallet survey found that more than one in three who took a PLUS parent loan now regret it. So what can you and other parents who are facing a similar problem do?

First, let’s celebrate all the ways you’re on the right track: Most likely, the credit card debt you had had a higher interest rate than the student loan debt, and congratulations to you on the to have reimbursed. “It’s a great achievement,” says Brent Weiss, Certified Financial Planner and co-founder of Facet Wealth. But now, “we need to focus on three things: your income, your retirement savings, and reducing student debt,” says CFP and attorney Charles C. Weeks Jr.

What do I focus on more: retirement savings or student loan debt?

A big question many parents facing this issue might have is whether to save more for retirement or pay off student loans faster. Depending on student loan interest rates, it might not make sense to rush to pay off debt (but still pay the minimum), if it means not saving money for your own retirement. “If student loan rates are low, your return on investment may be higher, and rushing to pay off debt will cause you to lose your retirement savings,” Weeks says.

Should I Refinance Student Loans?

In your case, it appears that these loans are private and that you co-signed them with your son. In that case, there are two things to consider: consider refinancing your student loans to extend the repayment period, set a low interest rate, and lower your monthly payment, Weiss says. “You can also refinance the loan in your son’s name only, but he would have to qualify for the loan and participate, so that might not be a viable option,” says Weiss.

How can I make monthly student loan payments more manageable?

“Remember to contact Sallie Mae again to renegotiate your payments if your income has changed significantly. They may allow you to suspend payments, known as forbearance, or temporarily reduce your monthly payment,” says Weiss. While neither deferring nor forbearing student loans will affect your credit, you still need to qualify for both and forbearing will increase the amount you owe. Note that often the lender uses the borrower’s income, not the co-signer’s income, when renegotiating a repayment schedule, says Bryson Roof, Certified Financial Planner and Financial Advisor at Fort Pitt Capital Group. repayment terms could be very advantageous for both of you, says Roof.

Weiss also recommends asking Sallie Mae about her co-signer posting options. “Sallie Mae will have to approve the application and your son will have to qualify for the loan on his own, so it’s not a guaranteed solution. If you are released as a co-signer, you are no longer responsible for the loans and your son will assume full responsibility,” says Weiss.

For readers with parent PLUS loans, “contact your current loan manager to discuss repayment options,” says Weiss. PLUS loans allow you to enroll in income-contingent repayment, which will cap payments at 20% of your income and extend the repayment period to 25 years.

Whether the loans are federal or private, Roof encourages conversation with a tax, legal or financial professional. “If the current monthly payment is too much for your budget, you can contact your loan officer and extend your repayment schedule, thereby lowering your monthly payments. Having a lower monthly payment is usually more manageable when living on an income. fixed pension,” says Roof.

What is my son’s responsibility in all this?

Unfortunately, Anna Helhoski, student loan expert at NerdWallet, points out that students who go into debt without completing their studies face an even more painful ordeal than those who graduate because they are less likely to see the same higher salaries. than college graduates, which makes it even harder to pay off debt. “For parents whose kids don’t finish school, there’s an added emotional blow to deal with, as well as the burden of parents’ loans to repay,” says Helhoski.

Which begs the question: how do you deal with this emotionally? Shannon Abrams, a Los Angeles-based licensed marriage and family therapist, recommends writing a letter expressing your feelings about what’s going on, your desire to fix the relationship, and pay the bills together so your retirement isn’t one. affected. “Letters are great because they give people time to think before they respond, which reduces responsiveness,” says Abrams.

Weeks notes that, perhaps, if you talk to your son about what a new, extended repayment schedule looks like, “it’s also possible that your son will realize that it’s his responsibility and start at a minimum. helping you pay them back,” Weeks explains.

If he wants to help but feels like he can’t, Rebecca Safier, certified student loan counselor and higher education finance expert at Student Loan Hero, says he could also look for an employer who offers student loan assistance. “Some companies offer a student loan benefit, similar to a retirement savings benefit. This list of companies offering student loans is a good place to start. »

Finally, before deciding to retire, it will be prudent to generate a financial plan that includes student loan repayment obligations. “Your financial plan will help you determine whether you should delay retirement, keep a part-time job during retirement, or restructure your student loan repayment terms,” ​​says Roof.

*Questions are edited for brevity and clarity.

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