My father wants Sallie Mae to release him as a co-signer on my $153,000 student loans.

My father is looking to buy a new home and Sallie Mae will not stop his loan even though Sallie Mae said I only need to remain a co-signer for the first 12 months after I start making payments. Sallie Mae did not provide us with any documentation specifying this. These student loans made it impossible for him to get a mortgage. What are our options and his?

Son worried about former student

See also: My sister owns real estate in Hawaii but refuses to write a will. When that person dies, will her half-brothers and sisters inherit anything?

Dear former students,

Unfortunately Sallie Mae SLM
-0.48%
You probably won’t consider your father’s desire to get a mortgage when deciding whether to remove him as a co-signer on your student loans.

Borrowers who default on their student loan payments can face harsh penalties for years. Your tax refund may be deducted, and your Social Security benefits and wages may be garnished to pay off your student loans. The Consumer Financial Protection Bureau provides guidance for cosigners, and also points to research showing that at least a quarter of cosigners will pay off their student loans at least once. Why am I telling you all this? This is because if all conditions are met, the lender will exclude the co-signer from the loan.

Co-signing student loans comes with risks. Anyone can fall into the red for failing to pay off student loans, and there’s no reason to believe it’s not someone’s child or parent. In fact, one-third of delinquent student loans are held by borrowers who are at least 50 years old, according to recent data. Even though older borrowers make up about 20% of federal student loan borrowers. Only 10% of co-signer release applications are approved, the CFPB found in another study. So your father is not the only one trying to get rid of him.

I have reached out to Sallie Mae regarding your letter to see if they can provide more insight. A spokesperson said the company only offers private student loans and will make several disclosures to customers during the application process. It also cited a policy regarding cosigner release, which states, “You may apply to release a cosigner from open and active loans after you graduate or complete your certificate, make 12 on-time principal and interest payments, and meet certain credit requirements.” there is. .”

Sallie Mae has not issued any federal loans since June 30, 2010 and is not a federal student loan servicer, the company confirmed. Mark Kantrowitz is the author of “How to Ask for More College Financial Aid” and “Who Graduates from College?” Who doesn’t?” They say people looking to get rid of a co-signer can stack the deck more in their favor by making sure they’re handling repayments and requests correctly. I’m not saying you’re doing it wrong, I’m just saying that it’s a very complicated process.

He said to make sure you put the correct loan ID number on the check so it doesn’t apply to the wrong account. “There is also the issue of a payment application order where the payment is applied first to accrued but unpaid interest rather than the principal, and I believe the borrower may be able to insist that the payment be applied to the principal. Even federal loans require interest to be paid up front, and borrowers have no choice in the matter. They also fail to realize that once the interest is capitalized, there is no difference between the payment applied to the interest and the principal.”

“Finally, the cosigner release option is not part of the promissory note and is entirely at the lender’s discretion,” says Kantrowitz. “In particular, any lender offering to release a guarantor wants to make sure that the amount being paid is paid by the borrower and not by the guarantor. Ultimately, as soon as the guarantor is released from the loan, the guarantor’s checks stop and the borrower defaults. Lenders want to be sure that borrowers have the ability to repay their debt. So they track the source of the payment.”

In theory, there is a way for dishonest borrowers to “game” the system. “If a co-signer wants to be sneaky, they can pay the borrower, the borrower can pay the lender, and the lender will be none the wiser,” he says. “However, lenders also check income, debt-to-income level, length of employment, payment history and credit score before releasing a guarantor from a loan. If the borrower does not meet any of these criteria, a cosigner release will not be approved.”

You want to avoid a situation where you are in default and your father has to bail you out, or you are in default and no longer have your father as a co-signer. As my colleague Jillian Berman reports, consumer advocates and borrowers have long complained that this approach to student debt collection can be overly punitive and could put borrowers in even more severe financial hardship. Both financial and ethical advice is boring. Follow the rules. Crossing the “t’s” and dotting the “i” will ensure that your father is released as guarantor on your student loans when it is in the best interest of all three parties: you, your father, and Sallie Mae.

If you have any financial or ethical questions, you can email The Moneyist at qfottrell@marketwatch.com and you can follow Quentin Fottrell on X, a platform previously known as Twitter.

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