What Happens When a Student Loan Is Not Being Paid by the Co-signer?

Private lenders for student loans often require that borrowers apply with a co-signer. The co-signer adds security by agreeing to repay the loan if the student doesn't, so the lender extends credit as if the co-signer were the borrower. Unfortunately, in some cases, the co-signer isn't actually willing or able to pay the loan when the student fails to. This will lead to several undesirable results.

Both Held Responsible

Although the student is the one who borrowed the money, in a legal sense, the student and co-signer are equally responsible for repaying the debt. In many states, the lender does not even have to pursue the student for repayment before turning to the co-signer to request payment. Each of the results of not paying a student loan affects the student and co-signer or whomever the lender chooses to pursue for payment.

Credit Score

Student loans are reported on both the student borrower's credit report and the co-signer's credit report. Regardless of who makes the payments, the full payment history appears on both credit reports. Likewise, when neither party pays, the missed payments appear on both credit reports as well. This will lower both credit scores and make it more difficult for the student and co-signer to obtain credit in the future.

Default

When neither the student borrower nor the co-signer has made a payment in 180 days, the loan usually goes into default. This means that the original lender sells it to a collection agency, who then tries to collect the remainder of the payment. The collection agency can pursue either borrower, and often chooses the co-signer because he typically has more income and assets than the student borrower. The collection agency can sue either borrower to try to get a court judgment requiring payment from bank accounts or wages garnished from paychecks. A court judgment will appear only on the credit report of the individual who is sued.

Considerations

Co-signing a loan is dangerous because you are taking a risk that no lender was willing to take. Although it can help the student borrow money for education, the student might not be able to repay the debt a few years down the road. You should only co-sign if you are willing to suffer the financial and credit-related consequences of the student's failure to pay. If you already have co-signed and want to get out of a student loan, you have two main options. If the student is consistently making payments as scheduled, ask the lender if you can be released as the co-signer. The other option is to have the student refinance the loan with someone else as the co-signer.

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Ways to Lower Credit Card Debt

Credit card debt affects countless consumers worldwide. While credit can be a useful tool if used correctly, it can easily become a mountain of seemingly unconquerable debt. The good news is that you are in control of your financial future. As long as you have income, you can take steps to best use it to lower your credit card debt.

Increase Discretionary Income

One way to lower your credit card debt is to increase the amount of income you currently make so you have more discretionary income left over after all of your expenses. Consider taking on a part-time job or turning a hobby into a money-making opportunity to bring in extra cash. Sell some of your old household items on an auction site or have a yard sale. Apply this discretionary income to your credit card debt to lower it.

Decrease Variable Expenses

Decrease the amounts of money you spend on frivolous or unnecessary items such as going out to eat, coffee shop visits, movie theater tickets, clothes and shoes, and other items that you can live without. Apply this money toward your credit card debt. Resist the urge to use your newly-cleared credit card balances to charge unnecessary expenses, or you will likely find yourself with high credit card debt once more.

Apply Extra Money Wisely

Apply your tax return towards your credit card debt to reduce it more quickly. If you receive an inheritance or other gift of money, use part -- or all -- of the money to decrease credit card balances. Even though you may want to spend the money on something more exciting, think of the extra money you will have every month once you eliminate your credit card debt.

Stop Using Your Credit Cards

It may be difficult to stop using the plastic, especially if you rely on it to get through sparse financial times during the month, but if you're ever going to lower the debt, you must stop increasing it. Many people make their minimum credit card payments and then charge the available balance once the payment posts to the account. Using this method will keep you in credit card debt forever.

Pay Off High-Interest Debts First

When applying money toward your credit cards, pay off the ones that carry the most interest first. The longer you have these high-interest debts, the more you will eventually pay. Work toward paying off the high-interest rate cards before turning your attention to those that have lower interest rates.

Pay Small Amounts Off

If you have several credit cards that have small balances, pay them off. They will be easier to pay off quickly and you will realize a sense of accomplishment. Don't focus solely on these debts unless they are the ones with the highest interest rates. If they aren't, pay those that carry higher interest rates first to reduce the amount of money you will pay in interest charges over time.

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How to Consolidate Loan Debt

You can use several methods to consolidate your loan debt. Some of the ways will help you to achieve your financial goals and objectives faster than others. The best way to proceed is to determine what you are trying to accomplish and then choose the method that saves you the most money in finance charges and also has the least amount of fees. Contact several banks or financial institutions to see which one is able to meet you needs and expectations.

Instructions

Debt Consolidation

1

Contact a credit card company and let the representative know you want to consolidate your debt. They will ask for balances and account numbers. If you are paying off credit cards, the address will appear on the representative's screen once you have given them the account number. You will need to give the representative the addresses for your other debts.

2

Tell the representative to send the payments directly to the creditors. The payments should be received in three to seven business days.

3

Use the equity in your home to consolidate your debt. Call a bank and apply for a home equity line of credit. After approval, you will be able to access the line of credit by going to your bank and filling out a withdrawal slip for the amount of money you need. You may also have the money transferred into your checking account then issue checks to your creditors.

4

Contact a debt management company like consumer credit counseling. You will pay them a lump sum each month and they will send the money directly to your creditors. The interest rate will be lower and your monthly payments will be lower. While you are in the plan, you cannot use or apply for any credit. The plan normally takes 36 to 60 months to complete.

5

Call your first mortgage holder and ask to have all of your debts consolidated. Depending on the term you may be able to receive a lower monthly payment and a lower rate. You can request your first mortgage holder to send checks right to your creditors.

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How Much a Collection Will Affect Your Credit Score

When a bill goes unpaid for a certain amount of time, the debt is transferred to a collection agency and becomes a collection account. At this point it is automatically posted as an unpaid debt in your credit history, which counts negatively against your score. But how negatively it affects your credit score will depend on the length of your credit history, how old the collection account is, other current payments and the type of debt. Each credit case differs, as the credit information for every person differs, so there is no set rule as to how much a collection will lower a score.

Reasons

The reason why a collection account can cause a severe drop in a credit score is because your monthly debt payment accounts for approximately 35 percent of the overall credit score. Because a collection account is a debt that remains unpaid for a long period of time, it severely drops the credit score. But the affect will also depend on other information listed in the credit report.

Statute of Limitations

Every state has a different statute of limitations, stating how long the collection account can remain on the credit report. In most states this limit is seven years, but some states such as California allow a collection account to remain on a credit history for 10 years. Once a collection account has been placed on a credit history, your ability to get credit cards, car financing or a mortgage is severely hindered.

Paying the Collection Account

Paying a collection account already on your credit report will not remove it or change your credit score. The collection information will still be there for seven years, but the collection agency is required by the Fair Credit Reporting Act to provide accurate information, so your payment of the debt will be noted on the collection, and this payment will be considered when lenders evaluate your credit risk.

Time

Although a collection account will negatively affect your credit score for at least seven years, the negative impact will decrease as time passes. Of course, making your other payments on time will also help decrease this negative impact.

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Consequences of Too Much Debt

Being in debt is common in America. With the majority of people in this country owing money to some form of debt, from everything to home mortgages to credit cards. Most people find a balance with their debts, and are able to manage it carefully so that it is not a problem. However, having too much debt can lead to many problems, some of which are long reaching and significant.

Less Money to Save for Retirement

Debt principal and interest payments can have a serious impact on a family budget. Most families have a limited amount of income, and that income must be appropriately split up amongst different spending categories, including debt repayment. As debt payments increase, there is less available for retirement savings. Many Americans do not save enough for their retirement, and the stresses of debt repayment hampers their ability to increase their savings rate.

Less Discretionary Income

Families use their discretionary income to purchase consumer goods and other indulgences. Consumer spending drives the national economy, and debt in a healthy ratio helps fuel that spending. Many consumers spend money on vacations and cars by using debt. There comes a point, however, when the increased amount of debt requires higher payments, reducing the amount of discretionary income available to spend, and a downward spiral ensues with this continued pattern.

Increased Stress and Health Effects

Too much debt and too much money being devoted to payments can cause stress on a person's physical and mental health. Not only could you suffer the direct results of the stress, but people heavily in credit card debt are more likely to smoke and overeat, increasing these health concerns. A study published in the February 2000 issue of "Social Science and Medicine" cites heart attacks as the number one health problems of people facing financial stress, with problems sleeping the next most common problem.

Increased Risk of Bankruptcy

Too much debt leads to an increase in the risk that you will file for bankruptcy. Even if you are able to pay your bills comfortably, or with a bit of effort, if you suffer a major financial setback, you may be pushed over the edge, and have no other choice than to file for bankruptcy. This is the reason that over-utilization of credit cards and having balances that are too close to the limit reduces your credit score: It increases the risk that you will default, and possibly be forced to file for bankruptcy.

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What Type of Debt Can College Students Get Into?

College students face many temptations during their college experience. One such experience is the temptation to overspend and get deep into debt. College students can get into a variety of different debt, making it hard for them to succeed financially following college, because they graduate owing thousands of dollars. Not all debt is bad, but it is important to teach your college kids to avoid it whenever possible.

Credit Cards

Credit card debt is common amongst college students. In fact, the average undergraduate student carries more than $2,200 worth of credit card debt as of summer 2008, according to the Center for American Progress. Students who graduate with several thousand dollars of credit card debt begin their careers with a disadvantage over debt-free graduates. In addition to the monthly payments and other fees associated with credit card debt, students with a large amount of credit card debt likely have lower credit scores and will have a harder time buying a house or car.

Student Loans

Student loans are another common type of college student debt. College students who cannot afford to pay their tuition in full often apply for financial aid, which comes in the form of a loan that the student must pay back over time after graduating. Student loan debt is considered acceptable and better than credit card debt because the interest rates on student loans are typically much lower than credit card debt. For some, student loans are the only option to pay for school.

Medical Bills

Debt resulting from medical bills is another form of debt that plagues some college students. Many medical procedures are unavoidable, and students who have health insurance through their parents or through the school often have most expenses covered. However, high deductibles or situations where the medical procedure is uninsured leaves many students with thousands of dollars in medical expenses, which many have a hard time paying for with little income coming in as a student. After graduating, the medical debt might still be a problem for students. According to a 2003 Commonwealth Fund survey, about 37 percent of adult Americans struggle to pay medical bills.

Retail Credit

Retail debt is similar to credit card debt. Students fall into retail debt through retail credit cards, which are similar to regular credit cards but only allow students to use the card in certain retail stores. The cards entice students to make retail purchases they cannot otherwise afford, and then cause students to fall into debt even more through interest charges and late or missed payments fees. Excessive retail credit debt also has negative implications on a student's credit score.

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Statute of Limitations for Alimony Arrears in Florida

A civil statute of limitations is a legally defined time limit in which a person can file a lawsuit. As time passes, the statute of limitations provides certainty that no one is going to sue you for a breach of contract or a long-forgotten debt. Florida Statutes specify the statute of limitations for collecting a judgment, including a judgment for alimony arrears.

Florida Statutes

Florida statute specifies that in Florida, a spousal support order, or alimony, is a court judgment, decree or order for monetary support for the benefit of a spouse or a former spouse. The legislation establishes the statute of limitations for a judgment, decree or order of any court. The statute of limitations expires 20 years after the date of entry of the judgment.

Entry of Judgment

Courts often order spousal support as a periodic judgment, payable every month. A new judgment, for each month's support, commences on the first day of each month. For a monthly alimony order, the statute of limitations expires 20 years after the date the last alimony payment was due. For example, if a court ordered monthly alimony payments for five years, the last payment ordered would not become a judgment until the passage of four years and 11 months from the date of the original order. Accordingly, the alimony recipient could sue for arrears up to 25 years after the court entered the divorce decree -- five years for the support to become due in full plus 20 years to collect the arrears before the statute expired.

Credit for Payment

An alimony payor in Florida who catches up on his alimony payments should request that the payee sign a satisfaction of judgment acknowledging receipt of the payments. The payee may acknowledge receipt of support in a certain amount or may acknowledge receipt of all support due as of a certain date, without specifying the amount received. The payor then files the satisfaction of judgment with the clerk of the court, and it becomes a public record verifying that payment of arrears.

Legal Advice

A combination of state statutes and judicial opinions makes up the body of divorce law in Florida. A Florida resident who wants to know how Florida's statute of limitations and alimony laws affect his particular situation should consult an attorney who can legally practice law in Florida.

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