If you are like most parents, you will do practically anything to give your children the best education possible. But for most, higher education is not possible without the assistance of student loans. Many times, it’s grandparents who step up to assist their grandchildren achieve a higher education. A new study by the Consumer Financial Protection Bureau (CFPB) reports that the number of older Americans with student loan debt has quadrupled over the last decade.
The Issue with Grandparents Cosigning
One of the issues that can arise for a grandparent is the inability to make the required student loan payment when it becomes due. The American Seniors Association (ASA) is one organization that has raised awareness of this growing problem among retirees. Many retirees are on a fixed income whether it is retirement or Social Security. If these fixed sources of income are garnished, many cannot meet their day to day needs much less pay the required student loan payment once it goes into collections. The CFPB says nearly 40% of the student loan borrowers 65 and older are in default.
Avoiding Late or Missing Payments
One option for federal loans if the student loan goes into default status is to try and get into a payment plan that is tied to the borrower’s income which could help the required payment become affordable. Many private loans do not have the same options as federal loans. The private loans may have the flexibility to negotiate a settlement. If you attempt to settle a private student loan, make sure the agency you deal with on the settlement is legitimate. It is important to make sure you understand the terms of any offered settlement and fully comply. The final amount owed by be different from what is offered as the terms of the settlement need to be negotiated. You could also face hefty fees and taxes on the debt. However, settling is better than not paying the debt at all.
In my practice, I commonly see grandparents who agree to get the student loans for a grandchild with the promise from the grandchild that they will make the payment and not the grandparent. Unfortunately, the grandchild’s inability to find a job post-graduation (if they graduate at all) makes this promise unfulfilled and leads many into default on the loan. Many times, the grandparent will have to return to work if they are able to supplement their income to meet monthly budget needs.
Credit Sesame says the average senior’s student loan debt is around $40,096. This large amount of debt can affect a senior’s ability to obtain new loans for a new car or any critical need that may arise according to the CEO of Credit Sesame.
If you have found yourself in a financial bind as a result of student loans or because of your fixed income, please give one of our Bond & Botes offices a call for a free consultation.