Parent Guarantees of Student Loans – Love Your Children, But Don’t Sign For Them!

In the recent past, I have seen a trend develop that, even as a parent, I find extremely disturbing – parents seeking bankruptcy protection in mid-life or in preparation for retirement that will remain saddled with their children’s student loan obligations long after they have discharged of their other debts.

Here’s an example: A couple in their early-mid 50’s that rent an apartment, with a combined income of in excess of $80,000 per year has $50,000 in credit card debt. In addition, while their child was in college, they co-signed for an additional $50,000 in student loans. Their child, now is his/her late 20’s, is having difficulty getting their career off the ground and cannot meet their student loan obligations. Mom and Dad, as the joint obligors, begin to make student loan payments for their child that could be as high as $500/month. Dad’s job then gets downsized and his $60,000 income is now $30,000. Mom and Dad now seek advise from a bankruptcy attorney (me). I now have to deliver the good news and the bad news that (a) they qualify for Chapter 7 bankruptcy; (b) they can obtain a discharge of their credit card debt; but ( c) they will still be obligated for their child’s student loans.

The reason for this is that, despite the provisions contained in Section 523(a)(8) of the Bankruptcy Code, which state that certain student loan obligations may be discharged in bankruptcy, in reality, this is NOT the case.

The rule of thumb in the case law on this issue was provided in In re Brunner The Court in Brunner basically held that so long as an obligor on a student loan is able bodied, has some net disposable income above their usual and customary living expenses, and is capable of making some type of payment on a student loan obligation, that student loan cannot be discharged in bankruptcy.

As a parent and a bankruptcy attorney for over 20 years, I give every parent this word of advise: Love Your Children, But Don’t Sign For Them! I know that you want to do everything you can to help your child to succeed in life, and this includes providing financial support. Financial support, though, does not have to mean co-signing for your child’s student loans.

If your child needs student loans to supplement their college expenses, let your child sign for them, even if you can afford to make the payments. You can always help them to make the payments for as long as you can afford to do so. The key is to love your child, and help them any way you can financially – so long as it is within your means. I am seeing too many couples who put their children ahead of themselves and are being forced to pay their children’s student loan obligations well into their retirement years. This trend will have to be dealt with by Congress at some point, but unfortunately, I do not see it materializing until our present economic house gets put back in order.