Student loan woes
March 24, 2013 8:16 AM   Subscribe

My ex-fiance co-signed a student loan for me. He understandably wants out. Other than taking out another personal loan with a much higher APR, do I have any other options for paying off the remainder of the loan?

The amount in question is $7,000. Loan repayment began in January of this year. I have paid $1,000 total.

I called the loan issuer (Discover Student Loans) and they said that in order to remove a cosigner I needed to have two years of timely payments. My other option was to pay off the loan in full, in which case I would need to take out another personal loan.

(I was hoping I could just replace my ex-fiance with my dad as a co-signer, but they said no to that as well.)

I can't wait two years, so I have been researching other personal loans and can't seem to find one with a decent APR. I applied for two, both with an APR of 11%. I have a credit score of 775.

I'm not well-schooled in personal finance, and my fiance used to take care of all of this so it's a foreign language to me. Do I have any other options for paying back this loan besides taking out a personal loan?

(If there is no other option, I'm of course prepared to take out a personal loan and throw all my money at it until it's gone, which is how I normally handle these things)
posted by pintapicasso to Work & Money (25 answers total)
Shooting in the dark here, but could you ask them whether there is an option to pay the first two years of payments now, then ask for him to be taken off as co-signer now? If so then rather get enough of a loan to pay the full sum could you not borrow enough to just pay that 2 years?
posted by biffa at 8:31 AM on March 24, 2013 [1 favorite]

It is their rules or their conditions really. That is what co-signing means, to take responsibility jointly with the signer to pay the loan. So your issuer wants you to either prove you can pay, or pay the amount owed.

Is that loan private? Do you have any others? You could consolidate if you did, which would allow an instance to "prove" by credit score alone that you can pay the consolidated loans (you would be the only signer).

If this is your only loan... your ex is just going to have to be patient. However, I would see if your issuer would negotiate to make the term 1 year of payments instead and not just interest only... I would suggest looking at your loan terms to see if any terms speak about co-signee release.
posted by Bodrik at 8:33 AM on March 24, 2013

You ex-fiance co-signed the loan. It is as much his responsibility as it is yours. Just pay the loan off in a timely manner, and make sure no overdue notices are heading his way, and he should have no reason to complain.
posted by Roger Dodger at 8:44 AM on March 24, 2013 [7 favorites]

Keeping my ex as a co-signer is not an option, unfortunately. He is trying to buy property and needs off this loan in order to qualify for another. I would like to honor his request, even if it means taking out a personal loan.
posted by pintapicasso at 8:57 AM on March 24, 2013

This doesn't exactly answer your question, but a lot of my friend's parents have done it so I'll throw it out as an idea. Does your dad own a house? Could he get a home equity loan for the amount that you could then pay off? If he's willing to consign your loan, he's willing to accept a level of risk that you would default. Obviously a big thing to ask, but if he's able to it will probably give you a much lower APR. I know a lot of people who do it for their kids because it just makes a lot of sense.
posted by whoaali at 9:21 AM on March 24, 2013

You have a great credit score. How long do you think the loan will take for you to pay off? Can you pay the loan with a credit card? You probably qualify for a 0% balance transfer with someone. Find a credit card that offers a 0% APR on balance transfers for 18 months (and obviously a credit limit that exceeds what you owe). Pay the loan with a credit card, then transfer the balance to the new card with 0% interest. There's usually a balance transfer fee of maybe $250 but then you have a 0% interest loan for 18 months. If you need more time to pay, just find a new card in 18 months.

This probably sounds irresponsible but credit card debt builds credit and actually, unlike student loans, if you ever declared bankruptcy, the debt would disappear because credit card debt is unsecured. My mother in law paid state school tuitions for two children this way. Today, her credit score in 800+.
posted by kat518 at 9:53 AM on March 24, 2013 [3 favorites]

Your ex could pay it and you could repay the loan to him on the same schedule.
posted by jeffamaphone at 9:58 AM on March 24, 2013 [1 favorite]

(FWIW my husband is in the "too bad for your fiancee" camp. I admire that you're trying to help him out but don't do anything that would compromise your financial future. This is not your fault and he knew or should have known what he was getting himself into. "He's lucky she's making payments," according to my husband. Now I'm concerned about our joint finances ... :-))
posted by kat518 at 10:05 AM on March 24, 2013 [16 favorites]

I really would NOT take out a personal loan at 11% to replace that. Thats insane and will cost you so much money. If your Ex wants to get off the loan that bad is he willing to pay the difference in the Interest Rate on your Current Loan and the Rate on the new Loan?

Really thats the only fair option. He agreed to go into the loan and now is backing out at very large expense to you. this could cost you quite a lot of money over the life of the loan.

Really I think its fair to say to your Ex simply that "Sorry, the Loan Issuer will not allow me to change over the Co-Signer for another year. - Its not possible." Really its out of your hands.

On another point: Did the issuer say why they can't transfer the Co-Sign to your father?
posted by mary8nne at 10:06 AM on March 24, 2013 [10 favorites]

I'm with mary8nne. I think it's commendable for you to agree to take your ex-fiance off the loan. But I don't think you should increase your interest rate for this. Figure out how much total you would be paying (including interest) at this rate, and how much total you will be paying (including interest) at whatever the higher rate is, using the same payment amount. (People here can help with that.) Then explain to your ex that to take him off the loan would cost $X over the course of the loan, and figure out what a fair split of that excess is.
posted by jeather at 10:12 AM on March 24, 2013 [1 favorite]

Have you looked into student loan consolidation? Shortly after graduating, I bundled a few student loans into one package at a lower interest rate, iirc.

Assuming that won't work, kat518 has a great idea: transfer to a credit card with a 0% intro offer on balance transfers. Even if you first have to take out a cash advance on one credit card (if the balance-transfer-offer card won't let you transfer directly from a student loan), the total interest you'll pay will be much lower than 11%.
posted by salvia at 10:21 AM on March 24, 2013

... I should say that it MAY be lower depending on how long it takes you to pay it off and the fee on the cash advance and balance transfer.
posted by salvia at 10:23 AM on March 24, 2013

He is trying to buy property and needs off this loan in order to qualify for another.

Which is something he should have thought about before he cosigned. He's an adult and he made choices which have repercussions. There's really no reason for you to pay extra interest because he wants to be relieved of an obligation he willingly accepted.

The path here is to pay 2 years of payments then take him off the loan. It's not exactly what he wants, but it's the fastest way to take him off the loan without negatively impacting you.
posted by 26.2 at 11:53 AM on March 24, 2013 [4 favorites]

Joining the "it's his responsibility too" chorus. I'm also somewhat skeptical that a $7k loan of this nature is materially affecting his ability to get a mortgage.
posted by snickerdoodle at 12:05 PM on March 24, 2013 [13 favorites]

Keep in mind that student loans often allow you to make lower payments if your income is low enough ie in case of a job loss. Switching to a personal loan means taking a risk with your finances beyond just increasing the interest rate (although that is a significant one). Same thing with the balance transfers.

Also nthing the skepticism that a $7k loan is what's keeping him from buying property. Just because he knows more about finances than you doesn't mean he knows what he's talking about.

If you're determined to get him off this loan, asking if your dad would be willing to take out a home equity line of credit for the loan amount seems like the best. The interest rate is likely to be low and if you lose your job or something similar, your parents are likely to be understanding.
posted by matildatakesovertheworld at 12:22 PM on March 24, 2013 [2 favorites]

Nth the "it's his responsibility too".

But, from a practically standpoint, how about a peer-to-peer service, such as Prosper?
posted by chiefthe at 12:46 PM on March 24, 2013

Thanks all for the fantastic suggestions. I'm shocked at the number of people who think he should stay on the loan. When he asked me to take him off the thought never occurred to me, I felt obliged because he co-signed under one set of circumstances (he was going to marry me) and then I broke up with him. I will think about it, I don't want to make an enemy but I don't want to be stepped on, either.
posted by pintapicasso at 3:42 PM on March 24, 2013 [1 favorite]

I think you are doing the right and honorable thing by removing the responsibility of your debt from your ex-fiance. He co-signed when he thought you two would get married, and now that you've ended it, it's unfair to force him to keep his obligation. Sometimes the right thing costs a little more money -- but it's still the right thing. It's the way you would want to be treated, right?

Since you have fewer years of credit history, and presumably a smaller income, and probably less savings, than your father I would ask him to cosign a personal loan for you (thus lowering the interest rate), or to loan you the money outright (possibly from his savings) for a lower interest rate. I would NOT ask him to get a home equity loan to help you save a little money on interest, as I believe a default on those could turn into a foreclosure.

Whether or not your father can or will do this, I think you've also got a very good instinct to "throw all your money at it until it's gone." That's an excellent way to handle debt.
posted by Houstonian at 3:50 PM on March 24, 2013 [2 favorites]

Take him off in two years.

Also, I highly doubt he needs off this loan to qualify for a mortgage (coming from someone who has a boatload of student loan debt and a house). Unless he has lots of other debt and/or a tiny income and/or is trying to buy a really pricey house, there's really no way the tiny monthly obligation from that 7k will make a difference. I think he is likely exaggerating to get off the loan (not that I blame him).
posted by murfed13 at 4:13 PM on March 24, 2013

Student loans used to be considered good debt: government insured so the interest is low, you can adjust the payments to reflect your income, they can't repossess your education... But the fact that you can't get rid of the debt with a bankruptcy is a problem. Frankly, even though it seems insane, shifting to a low interest credit card is not a bad option - as long as you make payments on time. I heard that some card companies will purposely misplace payments so they can shift you to higher interest. You need to call and check that payment was received before the due date.
posted by 445supermag at 4:19 PM on March 24, 2013

The decent thing to do is take him off the loan, certainly.

I don't think you need to throw yourself on a grenade to set him free tomorrow, though. It's reasonable to take a little while to figure out your best option.

I would think you can do better than 11% on student loan debt, but I don't know much about navigating loans either. If you can work with your dad that sounds like a promising angle. Maybe he could get you a new student loan with a different org that you could use to pay off the first one?
posted by mattu at 6:22 PM on March 24, 2013 [1 favorite]

pintapicasso - If this was just an inconvenience of forms, I'd tell you to get him off the loan. However, there isn't a way to do that without a financial penalty to you. It's not as though you lured him into signing for you with the intention of dropping him.

The breakup is a thing which happened. Now you both just need to behave as honorably as possible. Certainly, take him off the loan when you can. In the meantime, be very careful with the payments to protect his credit.

As a cosigner, he can call the loan company and ask about his options. That's something he may well want to pursue.
posted by 26.2 at 9:48 PM on March 24, 2013 [1 favorite]

If you're really trying to do the good thing, but also not get screwed over, how about you look a loan that you can get. Price out the difference in interest that you'd pay over the life of the loan. Go to your ex-fiance, and say, "Here, if you pay me X, which is the amount I'd have to pay extra to get a different loan, then I'll take that out. Alternately, if you can find a lower interest loan, I can look at that. If you won't pay for me to get a different loan, then I'm sorry and you'll need to wait. Or you can call the bank/institution, and spend your time trying to fix this." The other nice thing about asking him to pay the difference is if he see's that it's a few thousand difference he may be more understanding to your situation. He might feel the price is worth it for him to get the property. Especially if it's not worth it to him, hopefully he'll understand why it's not worth it to you for the sake of warm fuzzy feelings for an ex.

However, be aware that if you have the higher interest loan, and things don't go well for you and you get behind on payments, you'll end up paying a lot more than if you kept the original loan, and this would be an adult decision that you jumped in to (I.E. it would be nice of your ex-fiance to make you whole, but I wouldn't think that he'd be morally obliged to. And I'll point out that I think you're being nice for trying to get your ex off of the loan, but that you're not morally obliged to).
posted by nobeagle at 6:54 AM on March 25, 2013

I think you should keep the student loan and here's why:

1. If you go back to school, that loan goes into in-school deferment, so you don't have to make payments while in school (though you could if you wanted to).

2. If you lose your job or get in accident and have a ton of medical bills or any other adverse life event, you have the option of forbearance (meaning you delay payments for 6 months - a year until you can get back on your feet).

3. Student loan interest tends to be lower than just about any other loan.

4. The tax deduction you get for paying interest on student loans is another benefit you won't get from a conventional personal loan.

5. Discover in particular gives interest discounts. After 24 consecutive on-time payments, you are eligible for an interest reduction of 0.5% on your private loans through Discover. You won't necessarily get that option with a credit card or a personal loan. And if you auto debit, you qualify for a 0.25% interest rate deduction. Assuming your interest is 6%, that's down to 5.25% there (and possibly it's even less to start with and will be even less in the future).

All in all, I think it's admirable you want to do what you can to get him removed as the co-signer, but in the interest of your own financial health, he needs to wait. Having student loans is far better than having a credit card or a personal loan for a whole lot of reasons. He's an adult. He shouldn't have co-signed the loan if he didn't want the responsibility.

Student loans come with a lot more payment flexibility, and they have a lot more options they can work with when/if you can't repay the loan. There's a lot more risk on your part going with a credit card or a personal loan.
posted by zizzle at 9:52 AM on March 25, 2013

Thanks so much for all of the wonderful suggestions. I called my ex and he came over to chat about the loan. I figured out that there was a $1600(!) difference in the interest between the student loan and the 11% personal loan. He said that it was an unreasonable amount of money and that he would wait the two years.

Thanks again! I really appreciate all of your help.
posted by pintapicasso at 7:24 AM on March 26, 2013

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