Parents often co-sign for their children's student loans. Should those parents face a less difficult standard in the bankruptcy discharge of their obligation for that student loan debt?

By Alfred Villoch, III, Esquire, at Savage, Combs & Villoch, PLLC
In a recent blog post, the Bankruptcy Blawg addressed how difficult (almost impossible) it is to get rid of student loan debt in bankruptcy.  See Yesterday, the Tampa Bay Times published an article entitled “Co-signing a student loan carries risks for parents.” The article addresses how parents can feel a knee-jerk, moral obligation to co-sign for their child’s student loan.  But when you co-sign, the parents are on the hook for the debt with equal force as if the loan was theirs alone.  And they might not know that their child is not repaying the loan until they start receiving calls and letters from the bank.  By that time, the parent’s credit score has very likely taken a dip, noted Mark Kantrowitz in the article.
Not only is the student loan default potentially devastating to the parent’s credit score, but it is virtually impossible to discharge in bankruptcy unless a bankruptcy court finds that the parent meets the Brunner test.  See  That means, the parent or the child must repay the entire debt (with interest and late fees, if applicable) or it may haunt the parent and child for the rest of their lives.
Given that the child is already on the hook for the student loan debt for potentially the rest of his or her life, doesn’t it make sense that the parent co-signer have an easier standard to meet in order to discharge the student loan debt in bankruptcy?   Should it be easier for parents to discharge their obligation because a parent co-signer might feel a moral obligation to co-sign and benefits only indirectly from the loan?  Also, the tension of both parties being on the hook for the debt might erode at the parent-child relationship?  Plus, the reason that the parent usually co-signs for the student loan is as a guarantee of repayment of the loan.  But isn’t the bank already getting a significant guarantee of repayment through the strict dischargeability provisions of the bankruptcy code?  Also, certain loans are guaranteed by the federal government.  Should student loan companies give a verbal and conspicuously written warning about the permanency of student loan debt and how it will affect the parent?   What are your thoughts?  Should co-signing parents have it easier or the same?

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