If a cosigner is released from repaying a debt, that doesn’t mean that everyone is off the hook.

2 minute read

Question: My wife took out a private student loan as an undergraduate through Navient. They tried to collect on the loan while she was in medical school, but she had no way to pay it. The loan went into collections. Her dad was a cosigner on this loan. They were calling him and her daily. It got to the point where they offered to settle the loan for a lump-sum payment. My father-in-law cashed in a life insurance policy on my wife to pay the settlement. Approximately eight months later, they’re calling my wife again, telling her that this settlement only removed her father from the loan — even though the settlement paperwork he signed said, “The above loan will be considered paid in full” and the loan at the top of the paper has my wife’s name on it and the total amount due. Is this true that he only paid himself off the loan as the cosigner? Is that even possible?

Chris H.

Steve Rhode, the Get Out of Debt Guy, responds…

This is a classic outcome when people are unfamiliar with the debt settlement process. In your case, it sounds like they did something called a cosigner release.

On a private student loan a cosigner can be released from their responsibility to repay a debt once they meet certain requirements for repayment that the lender sets forth.

I’ve seen similar situations where, for only a few thousand dollars more, the lender would’ve settled the entire debt for both parties. However, the consumer has to ask the right questions to get that kind of deal. If you don’t, the primary borrower may still be on the hook for the remaining balance once the cosigner is released from their obligation.

If you feel the paperwork reflects that the entire loan balance was settled, then I would highly recommend you contact an attorney. Make sure they are licensed in your state and ask them to review the paperwork. If you don’t have money to hire a lawyer, find a local Legal Aid Society to get free legal advice.

Otherwise, it sounds like this was a student loan in your wife’s name where her father guaranteed payment on the loan as a cosigner. He subsequently agreed to settle his part of the obligation using a cosigner release settlement. This left your wife on the hook.

If this is correct, it leaves your wife on the hook for the remaining balance minus the amount paid on the cosigner release.

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About the Author

Steve Rhode

Steve Rhode

Steve Rhode is known as the ‘Get Out of Debt Guy’ and he has been teaching people how to deal with money problems since the 1990’s. After his own personal bankruptcy, he formed a nonprofit organization to help people get out of debt. Since then, he’s had a syndicated advice column in 50 newspapers across the country and has written three books. He’s appeared on FOX, CNN, ABC, NBC, and MSNBC giving money advice and now he is now an investigative reporter specializing in covering consumer debt and the debt relief world.

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