Episode Transcript
[00:00:00] Speaker A: In this episode, we cover options for people who co signed a student loan for someone else or for a parent who took out a parent plus loan on behalf of their child. Let's get started.
Are your student loan payments or loan.
[00:00:13] Speaker B: Balances a major obstacle in your financial life?
[00:00:16] Speaker A: Then tune in and let's escape student loan debt.
Hello. My name is Brenton Harrison of Escape student loan and your host for the Escape Student Loan debt podcast. If you've been with us over the last several episodes, we've been covering in detail parent plus loans, and I've said that I was pretty surprised by the response that we've gotten. This was a smaller topic in my mind, and based on the response, it's not that small of a topic. There are a lot of people out there with parent plus loans. So we went through how parent plus loans are structured, why they're a very unwieldy type of debt when it comes to repaying them, and we also covered the double consolidation loophole that you can use to put those loans in a better light when you're repaying them under the federal umbrella. And we also covered that. That loophole is closing in the year 2025. In this episode, we're going to talk about people who, instead of trying to have their loans forgiven, are trying to pay their loans off in full. And that can take the form of two different camps. There are people out there, when we talked about private student loans in earlier episodes, who have had to co sign for someone else, meaning that they weren't taking out the student loan for their benefit, or they weren't refinancing a federal loan with a private lender for their benefit. They were doing it to help someone else who couldn't qualify for that loan on their own accord. And as a result, they had to ask that person, can you cosign on this application so that I can get approved? We also want to cover in that second camp people who have parent plus loans that they've taken out on behalf of their children so that they could get through their schooling. But instead of trying to have it forgiven, also see an opportunity to pay it off in full, possibly at a lower interest rate with a private lender. So before the break, we're going to stay on the theme that we've been on in recent episodes with parent plus borrowers, and we're going to tell you some of the options that you may have. And then after the break, we're going to talk about, for cosigners, an option called cosigner release that can give you some relief from the burden of cosigning for someone else, which I have shared in almost all scenarios I would recommend against you doing if at all possible. But let's start with parent plus loans. Parent plus loans are something that you clearly take out on behalf of your child. And when you're faced with the option of repaying them, many people look at it and they say that they have two options. Either they are going to try to have their student loan payment under an income driven repayment plan be as low as it can possibly be, or they're going to pay the loan off in full at the lowest interest rate possible or the most favorable terms as possible. If you are trying to pursue having it forgiven and having the lowest payment possible, that typically entails doing the double consolidation loophole, as we discussed. But when you're trying to pay it off in full, it becomes an interest rate play, where you're looking at the rate that you have with the federal government and comparing it to what you might have with a private lender. Now, that's regardless of the federal student loan type that you have. If you have a private student loan that's being offered to you at 5% and your federal loans are currently at 7%, refinancing can make some sense with parent plus loans. However, there's the added wrinkle of the fact that as a parent, you took out the loan, but it wasn't for your schooling. You're doing this to benefit your future child's profession, your future child's financial life, and you really did it because you had no choice in most cases, because that child was likely capped at the amount that they could borrow for their undergraduate studies. So they either had to leave that school or you had to take out that loan on their behalf. But after they've graduated, you may say they need to pay this off in full. They're making good money, their finances are in good shape. I got them through college, which was my intention. But now I'm trying to get this loan off of my books. And instead of having it forgiven, instead of even trying to refinance it with a private lender and pay it down at a lower interest rate, or instead of saying, hey, it's still in my name, but my child can give me the money to make the payments every single month. You want to find an option to get your name off the loan completely and transfer it to your child. Now, when I started in this business, that was not possible. You would find a private lender that would allow you to refinance a federal parent plus loan. But when you refinanced it with them, it was still in the parent's name. It was just with a new entity. But in the last five or six years that has evolved and there are now private lenders who will allow you to refinance a parent plus loan that's currently in the name of the parent into a private loan that is in the name of the student. If you're following along with this on screen, and we'll put a link to this article in the show notes. If you're listening, there's an article on screen from nerd Wallet that says four best parent plus loan refinance lenders of December 2023. Now, most of these lenders, if not all of them in this article, are going to be those that will allow a parent to refinance this loan in the name of the student once it's transferred. And articles like this are updated constantly. So this is one that's relevant as of December 2023. In April, there will be a new one where they'll have evaluated other lenders. But in this scenario, you can see that sofa, lower road Brazzo student loan refinance are some of the ones that are listed here, and they're going to give you the details of the current range of interest rates that are found on these loans, the minimum credit score that might be required, and they're also going into detail in this article about how to have it transferred into your child's name versus having it transferred into your name. Now, just like with a private student loan that you are applying for on your own accord, there has to be some financial viability for the applicant, meaning that if you're trying to do this six months after your child graduates and they don't have steady employment, this is almost impossible to take place. This has to be done when your child is in firm financial footing, because the likelihood if you tried it otherwise would be they would just ask you to co sign on the loan anyways. But when you have a child who has established themselves financially, and they may have been in the scenario where they were going to send you the money to repay the loan in the first place, you can go to some of these lenders, and these are not the only four. These are just four of the potential options, and you can refinance with them using your children's finances to qualify. And when it goes over, it will be in the name of your child. So that's the option for parent plus borrowers who are trying to get these loans off their books and onto the name of their children. If you are a borrower who is cosigned on a loan and you're trying to get your name off of that cosigned loan, after the break, we'll tell you some options that you have in your scenario.
[00:06:59] Speaker B: This is the escape Student loan Debt.
[00:07:01] Speaker C: Podcast, a show for established professionals whose student loan payments or loan balances are impacting their marriage, their business, their credit, or their dream of achieving home ownership.
[00:07:12] Speaker B: We'll be right back.
Are you interested in learning the tools and techniques we use to get student loans forgiven, reduced, reorganized, or expedited? Well, great news. We're currently updating our flagship course, escape student loan debt, to reflect the current changes in the student loan landscape. To stay up to date on the launch of the course and opportunities to sit in on our live recording sessions, head to escapestudentloandet.com and join our email list. Now.
[00:07:44] Speaker C: You'Re listening to the Escape Student Loan debt podcast.
[00:07:48] Speaker B: Subscribe now at escapestudentloan debt.
[00:07:52] Speaker C: Welcome back.
[00:07:54] Speaker A: Before the break, we talked about parent plus borrowers. Now it's time to talk about people who have cosigned on private student loans for others. If you don't recall, in the episode on private student loans, we talked about how co signing is something that's really dangerous to do because even if you're not taking it out for your schooling, you are signing up for an equal responsibility to repay that debt, even if the person for whom the loan was intended is not carrying their end of the bargain. We've seen terrible scenarios where someone has co signed on a student loan for a friend, and then that friend falls off the face of the earth, stops making payments, and the person who cosigned is faced with the prospect of either watching their credit tank or making payments on their friend's loan, even though it wasn't for their schooling. We've had situations where people have co signed on loans for their spouse and hasn't had that disbursement taken care of in a divorce proceeding, and now they're having to pay student loans for their ex spouse because if they don't, their credit will still be tanked. There's just a number of different reasons why, if you can avoid it at all, you wouldn't co sign on someone's student loan. Now, that being said, if you're listening to this episode, you've already done it, and you realize that you want to extricate yourself from this situation as quickly as possible. And again in years past, when I started this, there weren't many options. You were on this loan if it was a ten year repayment that was going to stay on your credit for ten years. And that's just what it was. Even if you were not making payments and your friend was, it still showed up on your books. But now, with the evolution of private student loans, there's now something called cosigner release, and the premise of it is the same as getting a parent plus loan transferred into a kid's name. The person who is trying to release their cosigner has to have strong finances. Remember in the first place that the reason there needed to be a cosigner is because the original applicant did not have strong enough finances to qualify for this loan on their own accord. But now, if they have strong finances, they can apply for cosigner release if their finances are not only strong, but they are in good standing when it comes to how they have behaved with the loan that they're trying to have released. As an example, if you're following along with us on screen, we're looking at another article that shows six student loan lenders with cosigner release. This is something that was updated as of July 1, 2022. So again, I'm telling you that these articles are updated frequently so that you can go and find the most up to date information. But this is also something that you can check with directly with the lender to ask what their terms are. But this is just showing you an example of how these typically work. The first student loan lender that you see is not everyone's favorite, it's Sally May. But Sally May, at least as of July 2022, they would allow you to apply to have your cosigner taken off of your loan after just twelve months of on time payments. And I can tell you that that is unusual. Most lenders require you to have at least 24 months of consecutive on time payments before they will even consider releasing your co signer. There are other requirements. The person who is going to remain on the loan has to be at least 18 years old. They have to have graduated from the program for which they took the loan. They have to be a us citizen or permanent resident. They have to have passed a credit check and all these different things to establish the viability of their finances. You also see sofa, which in this case at that time required, like I said, 24 months of on time consecutive payments. Again, this one's a little dated, but we're going to put the link for it so you can see it in the show notes, but there's not much to discuss here. This is how it works. You apply. The finances of the person who's going to remain on the loan are either good enough to pass muster or they are not. And you're kind of in a waiting game to see if you can be released from that loan. But I can tell you that the decision of whether you should even apply kind of lines up with how I feel about asking any question. One of my favorite sayings is if you don't ask, the answer is already no. So you might as well ask. And that's how I feel about this scenario. If you know you've met the metrics for 24 months or twelve months, whatever it may be, it's worth applying for the release because there is no negative credit impact for the person who is being released. Now, they may do a credit check for the person who's going to remain on the loan that's dependent on each individual company. But if you're trying to get yourself off of someone else's loan, there is no negative impact for you applying for that credit release. So it's something that you should throw up there and hopefully it sticks and you can pull yourself out of this situation and move forward with your life. So, not a very complex episode, but these are resources that you may not have known that you had at your disposal. Hope this was helpful to you if you've co signed on someone else's loan or if you're a parent plus borrower trying to get that onto the backs of your child who now has strong, sturdy shoulders that can manage this responsibility as a result of you helping them get through their schooling. We will be back in a couple of weeks with a short episode right before the new year, and I hope to see you then.
[00:12:59] Speaker B: From escape student loan debt. This was the escape student Loan debt podcast, a show for established professionals whose student loan payments or loan balances are impacting their marriage, their business, their credit, or their dream of achieving homeownership.
