Thursday, August 26, 2010

Cosigner Nightmare and Plan C

Many parents dread having "the talk" you know, about S-E-X, with their kids.  But trust me, nothing is more dreaded by the kid than having "the talk" with their parents about you know, the student loan debt that they can no longer afford to pay that their parents cosigned.  Well, I just had "the talk" with my parents last night followed by a 6:30 am continuation phone call by my father which ended in me crying, talking about suicide, and dropping F-Bombs (soooo out of my character, well at least in front of my parents).

I thought I was being smart by calling my Mom on Tuesday and letting her know that I would call her later (meaning 2-3 days) to discuss a strategy for paying the student loans since the payments increased so drastically.  I completely had my business professional hat on and was focused on laying out the issues and developing a plan of attack.  I was being proactive for a change by attempting to get out in front of the problem before the next bill was due instead of hiding the unopened bills in a shoe box like I usually do.  Well my mom, being the awesome parent she is was one step in front of me.  She called me last night while I was playing with my son on the porch and said, "Is now a good time?"  I really didn't have a good reason to delay any longer so I promptly emailed her the spreadsheet I created. 

I diligently explained my personal budget and how the increased student loan payments weren't going to work (I had been paying them regularly until the increase occurred).  I empathized with them and expressed that I understood that their credit was important and that I could care less about mine at this juncture.  I was purposely being stoic so as not to bust out crying as the whole situation frustrates me when it comes to my parents involvement in this hellish matter.  Then she drops it on me...she tells me that the reason why their credit is so important is because the loan on their home is reviewed periodically and if their credit is bad, their rate increases.  Now couple a new higher mortgage payment along with these high ass Sallie Mae payments and not only is my life ruined, but so are the lives of my retired 60 year old parents.  Shit, I was counting on moving in with them after Sallie Mae takes my house and now they may not have a roof over their own heads! Damn you Massa Sallie Mae - Damn you!!!! How do you fuck up my Plan A life and my Plan B life in one fell swoop! Not to mention my parents' lives as well!  This company is definitely the Devil's Spawn!! Dave Ramsey's voice and the scripture "Borrower is Slave to the Lender" keep replaying in my head.  There is no way the birds and bees talk is more difficult than this discussion because at least you don't have to explain taking it up the butt!

The conversation concludes when I restate the obvious, "So where are we if we can't default and we can't afford to pay the bill?"  An unsettling silence follows and my mother states, "Well, that's the end of that conversation."  We both hang up.  Three minutes pass.  Then a flash of brilliance.  My mother calls back and says, "How many loans are we the cosignors on?"  I tell her I think all of them, but that I would call in the morning to confirm.

The next morning arrives with a phone call from my father at 6:24 am first my cell phone, then my house phone where he leaves a message to call him back as soon as I get the message.  Clearly, I ignore it and go back to sleep.  He calls me again at 7:09, same scenario - cell phone followed by house phone.  I ignore it again.  I finally get up and get dressed and call him back.  He tells me that he didn't sleep at all and that he and my mother walked through the house after the conversation last night trying to figure out what they could sell.  My heart drops.  Then he says that he was even thinking about finding a job and coming out of retirement.  My heart stops.  NOW MY WHOLE FAMILY IS SALLIE MAE'S BITCH!!!  He then chastises me for not apologizing for this situation and not sounding remorseful.  I understood his point, but I'm $190K past remorse.  Plus, remember I had my business professional hat on so I could focus on a solution so all my emotions were checked at the door.  Anyway, I told him I did say I was sorry, but honestly, I can't remember if I said it or not.  He backhandedly berates me by saying I'm a smart girl and I should have kept better tabs on this loan situation.  I try to be my stoic self and appease him by cheerfully saying, "Yes, you're right." (Um, not sure if I should feel bad about not being smart enough when there is a whole movement and thousands of articles and web comments about predatory lending practices of Sallie Mae and other lenders.)  Then it happens.  I lose it.  I go off talking about I have no F-ing life whether I'm dead or alive b/c of this shit and that no one signed up for this and F-this and F-that.  Damn, the one thing I didn't want to happen - I didn't want to lose my cool.  I feel like Sallie Mae takes even more from me when I do that.  My father is clearly not moved by any movement or other people's situations no matter how similar to ours because none of that is going to help him keep his house.  I quickly gather myself and say, "yes, you're right" to his remaining statements.  I end by telling him I'm glad he was able to get it off his chest (it being "shit" which is now all over my face, but hey, at least one of us feels better).

Today I received the best news I've ever heard from my lenders - matter of fact, its the only good news I've ever gotten from them.  It almost tops when the doctor told me I was pregnant!  My parents are cosigners on only two of my loans!!!!!  Default city here I come!!!  I am smiling ear to ear!  Go Mommy for making me check!!!  My parents are cosigners on the smallest loan which is $6,889 and has a reasonable payment of $60 a month.  They are also cosigners on the 2nd largest loan of $63,760 which payment increased to $506.65 from $282.40.  (I want to reiterate that Sallie Mae added $17,596.00 worth of capitalized interest to this loan that's 36% of the original loan amount - THE DEFINITION OF PREDATORY LENDING.)  Now I have a new outlook, a second wind and fresh perspective!!  I will reprioritize my payments to make these 2 loans the most important and default on everything else. Now, that's a strategy!!  My parents get to keep their home and I'll have a place to live when they come for my house!!  If I can execute this strategy for the next 14 years which is how long it will take to pay this Sallie Mae loan off then I will be able to pick up a payment on another loan.  Oh, by the way, in 14 years I'll be 48 years old.  Thank ya Massa Sallie Mae for my freedom! Boy, am I feeling good and riding high!  Now, I just need to figure out how much money I can scrounge up to help make this payment for the next 14 years.


  1. Hello, SMB. Welcome to the blogosphere. I love your background. I hope that you continue to blog and figure out a way to help yourself out of this hole, or discourage people while you try. :) Email me about yourself when you get a chance!

  2. SMB - this changes the situation significantly. However, you now need to consider the effects of preferring one creditor over another, and whether these loans are cross-defaulted. I'm not sure what areas you practice in, but you and your parents really need to speak with a very good bankruptcy lawyer. If you are forced into an involuntary bankruptcy, you will almost certainly not have the ability to pay one over the other, and any payments you've made on one over the other could be clawed back over some time period (up to a year, maybe only 90 days, depends on the facts).

    It might be the case that your parents should pay off the loans on which they are co-signers, since they have no liability on the others and the other creditors cannot reach them, while you do what every you are going to do across the board.

    Disclaimer: I'm not offering legal advice, and I would never counsel anyone to avoid paying a valid debt, and I don't practice in your state.

  3. Thanks Cato! No one is going into bankruptcy b/c student loans aren't bankruptable. And there are no cross-default provisions that I'm aware of. Paying off the loans they co-signed on would be ideal. So I'm sure they will just pluck $63K from that money tree they have in their backyard. I mean most retired people have that kind of money just sitting around right?

  4. Thanks for the warm welcome Angel. It's an honor to get any kind of a compliment from a well-versed blogger like yourself. Blogging has been the most therapuetic thing for me in dealing with this student loan situation. I'm not sure there's much help for me either b/c I make too much (even though I work for a non-profit) or b/c I have private loans. Sucks to be middle class. Stay tuned for my post about why I can't afford to be middle class.

  5. I think you misunderstood my point, SMB. I'm on your side. I was not suggesting you would seek bankruptcy protection, but that it might be used by your creditors against the strategy you were implying. It is important to understand the topology of your situation and the variants on it in order to make good (or least bad) decisions in a difficult situation.

    Were you to attempt to favor some of your (nondischargeable) creditors over the others - to concentrate on paying the creditors who could affect your parents credit, the ones you did not favor could force you into an involuntary bankruptcy. That would mean that payments you made to the favored creditors would be clawed back and shared out among the others of the same priority pro rata -- leaving your parents on the hook for most of the co-signed loans, which would then be in default and accelerated.

    You need to read all the loan documents to see exactly what the defaults (and cross-defaults, if any) are, but bankruptcy is almost always a default.

    I am under the impression from your previous posts that your primary concern at this point is your parents' credit, as it affects not only their peace of mind, but their own financial security and home.

    I make no assumption, but at least exploring the possibility of your parents paying the loans they've co-signed off is worthwhile to protect them. While not all retired people have that kind of money lying around, many do have resource they could tap - even if inconveniently. Even if you ultimately commit (morally and/or legally) to contribute an equivalent amount to your parents in later years, so that they are long term revenue neutral, they might have more piece of mind if the loans on which they were cosigners were paid off, freeing them from worries about their own credit and losing their house. Understand also that if your parents pay, there are potential tax issues to consider.

    There will be a way to thread through this that you can live with, but I also know it will be one of hardest things you've ever done. Have Faith and persevere. I know you can do it.

  6. Thanks for the explanation Cato. I know you are on my side, I was just giving a humorous sarcastic answer. I sincerely appreciate your dialogue so don't take my response harshly. You gave excellent insight into bankruptcy that I didn't know about. Is any of that applicable to student loans if student loans aren't bankruptable?

  7. I think so, but I'm not certain - I keep my hand in corporate reorganizations, but not consumer bankruptcy. I think the principles are equally applicable, but that's why I suggested you get a hold of a very good bankruptcy lawyer, who will know. Just because the debts are nondischargeable shouldn't alter the questions of priority and preferences in a bankruptcy context. As much as bankruptcy law is intended to protect the debtor, it is equally intended to ensure that creditors in an equal position are treated equally.

  8. Just read your blog. What a spoiled little princess. Poor baby ... it's everyone else's fault, isn't it? There, there. Why don't you shut the fuck up, and deal with your debts like any other responsible human being instead of dragging your poor parents into your mess, and begging for money with a "Donate" button while you whine and complain like the bitch you are.

  9. Anonymous 2:58:

    Careful, there. Karma is a bitch.

    Also: May I suggest therapy, and a lot of it.

    1. You should never look down on people unless you are helping them up. Lucky you derogatory anonymous commentor that you can judge people so, lucky you were so smart you didnt become a Sallie Mae victim. Because of people like you there will always be hate and ignorant people, either way you look at it. Your ignorant for your judgements and callous comments, for your utter lack of empathy and sallie mae bitch as well as me since i am a sallie mae bitch too am apprently ignorant for being a victim of a loan shark-sallie mae.