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Is Defaulting On My Private Student Loans My Only Choice After a Divorce Where My Ex-Husband Cosigned?

Question:

HELP!! I am currently about $400,000 in debt with student loans. Let me start at the beginning. My federal student loan debt was used to acquire my undergraduate degree while staying at home and raising my new born son. I’m fine with this. Apx $100,000.

I married shortly after that and my husband decided to leave his job 6 months after we relocated to his state of VA. This was also at the time I decided to pursue my graduate degree. Over a course of 3 years there was additional amount of apx $250,000 in private student loan debt I took out (with most of them him co-signing for) to support us after his choice to walk away from his job. We divorced shortly after this.

I was completely apathetic in the divorce decree and just wanted it over with. As a single mother then with a massive amount of debt and a income of $40,000 (at that time) I had to file Chapter 13. The 5 years have now passed, the bankruptcy was discharged in Dec of 2017.

During those 5 years interest has continued to accrue on all of the loans which has brought them to the $400,000 range. I am able to work with my federal student loans to have them discharged after 10 years as I am an addictions social worker for the government.

The private loans though…it seems as if I have no option other than to default and probably SHOULD have done that before the bankruptcy.

I need educated opinions on this. Is defaulting on the private student loans really my only way to manage this situation? I have offered to make payments I can afford, however, they have said they will not accept them.

Melynda

Answer:

Dear Melynda,

It sounds like you hope to address your federal loans through the Public Service Loan Forgiveness program. Keep in mind there are some very specific requirements to making sure your loans will eventually be eligible for forgiveness. The biggest issue is to make sure your loans are eligible for a discharge.

This typically means consolidating the federal loans into a new Direct Loan and then opting for an income driven repayment option to give you the lowest payment until you make the required conforming 120 payments to even be eligible for forgiveness.

The bigger issue here is it does not matter what you might have agreed to in a divorce agreement, he is still 100% responsible for all the private loans he co-signed for.

This means if you elect to default to attempt to settle these loans there is a good chance the private student loan lender will go after your ex-husband for payment. He can be sued over these loans.

So in situations like this where another person can get dragged into the resulting mess I would suggest you advise your ex-husband what the strategy might be in defaulting. Defaulting will most likely also show up on his credit report as the co-signer.

All of that being said, it sounds like some of your private loans may be eligible for forgiveness in a Chapter 7 bankruptcy with an Adversary Proceeding filed.

The big issue would be if the private loans were used for expenses other than just tuition and approved educational expenses. Please see this article for more details.

The most difficult issue to deal with in these kinds of situations is to navigate all of the moving parts so you can have the right expertise on your side to advise you on what to do. The best person I know of to help do this is my friend, Debt Coach Damon Day.

Steve Rhode
Get Out of Debt GuyTwitter, G+, Facebook

If you have a credit or debt question you’d like to ask, just click here and ask away.

This article by Steve Rhode first appeared on Get Out of Debt Guy and was distributed by the Personal Finance Syndication Network.

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