When Congress resolved the latest debt ceiling with the passing of The Financial Responsibility Act of 2023, both parties agreed to stop the forbearance on student loans payments. Federally backed student loan payments have been paused for the past three years due to the pandemic. Payments on student loans are set to resume following this September and many are not going to be prepared for this.
If you have co-signed (or endorsed) for a student loan, it is imperative that you contact your child or person that you co-signed for and make sure they’re able to make payments. If they do not make their payments, odds are you will not be notified, and your credit will suffer as if you were the one not making the payments. If you’re late on a federal debt, like most student loans, it will impact qualifying for an FHA or other government backed mortgages.
Most federally backed student loans do not require a co-signer or endorser (which is essentially the same as a cosigner) unless the student had adverse credit. Private student loans are not impacted by The Financial Responsibility Act (the act only federally backed student loans). NOTE: If you have co-signed for a private student loan, you may be able to request a release as a co-signer if the student meets requirements.
It’s likely over the past three years, the person with the deferred student loan has taken on more debts, maybe a new home or car or the payments on their credit cards have increased because of the higher interest rates.
It’s reported that 45 million Americans have student loan debt with an average amount owed of $38,000 and an average payment around $350. Over the past three years, with no payment due, lenders could use 0.5 to 1% of the debt owed to factor in a payment for the purposes of qualifying for a new mortgage. Once the payments start up, lenders will use the actual student loan payment when qualifying for a new mortgage. My purpose for this post is not about qualifying for a new mortgage – it’s to give parents, grandparents and those who have co-signed a heads up!
Please do check with anyone you’ve co-signed for (honestly, I would do this for ANY debt I’m a co-signer on) to make sure they’re prepared to make the payments and that you’re credit is not in jeopardy.
There may be other options available to help people with student loan debt. Homeowners to be able to refinance the debt without it being treated as a “cash-out” refi. Some may qualify to restructure the payments based on their income and some may have a portion of their debt forgiven. There is a lot of confusion over this topic. And unfortunately, there are a lot scammers out there trying to take advantage of this confusion.
Bottom line, when you co-sign on a debt, it is essentially your debt (or your responsibility) too. If someone is having to chose between making their housing payment or paying for a student loan, in my opinion, it’s likely some will choose to skip on the student loan unknowingly causing damage to those who co-signed for them years ago.
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