Erica Sandberg is a prominent personal finance authority and author of “Expecting Money: The Essential Financial Plan for New and Growing Families.” She writes “Opening Credits,” a weekly reader Q&A column about issues for people who are new to credit, for CreditCards.com.
Dear Opening Credits,
Hello. I pray to God you can help me. I had a private student loan through Sallie Mae that I defaulted on and it got sent to collections. My mother was a co-signer, but now has nothing left. She lives on food stamps. What are my options to fix this? Is there anything I can do? — Peter
Sometimes the answer to a question is so obvious and easy that it requires no divine intervention. This is one of those cases. Begin paying your loans and helping your mother with her financial needs.
Too simple? Well, yes and no.
Your mom did you a tremendous favor when she co-signed on your private student loans. By doing so, you were able enjoy a higher education and perhaps even a degree in a field you love. You didn’t have to produce all the cash necessary for tuition and other costs. She stepped in and promised the lender that if you didn’t pay them back, she would.
Rather than pay as you ought to have, you defaulted on your student loan. The lender then sent the balance to either their internal collections department or sold them to a third-party collection agency. After not being able to squeeze any money from you, they most likely contacted your mother, since she is on the paperwork as the other owner.
How horrible. Take control now, Peter:
1. Get a job. No, get two or three jobs so you can earn enough money as you are physically able.
2. Absolve mom of duty. Tell her that you — not she — will pay your loans, and that you are also going to financially assist her so she doesn’t have to use food stamps to eat.
3. Determine how much you can spare. Once you know what you have coming in, review your budget and cut down expenses to your necessities. Whatever cash you have remaining at the end of the month is your fixed payment for your student loans and your mom’s groceries.
4. Assume communication duty. Contact the loan servicer or collector and let them know that you are the primary account holder. Explain that you’re taking over and are ready to make good on what you owe.
5. Request a payment plan. Ask them how much they will accept on a monthly basis to get the loan back on track. If it’s too much for you to handle, say so. Never promise what you can’t deliver. Negotiate until both of you are satisfied with the sum.
6. Pay the loans and your mom. Be consistent with your payments and always send the money on time. When you do that, they will stop contacting your mom and she won’t feel obligated to send them money that she can’t spare. Then, supplement her income as much as you can. This way you’ll be paying her back for when she jumped in to pay the loan when you couldn’t.
I’m not going to pretend that this plan is easy. Hard work is hard, and securing employment in this economy is tough. However, perhaps your parent-subsidized education will give you an edge.
If you do struggle, take heart that you’re doing the right thing. And once you do get on a payment schedule, you’ll be rebuilding both your credit report and hers. They’ve been hurt by the default, but as the balance decreases and evidence of steady payments are recorded, you’ll be mending that damage.
Finally, since you started your letter with a prayer, I’ll end it with these words of wisdom from St. Francis of Assisi: “Start by doing what’s necessary, then what’s possible; and suddenly you are doing the impossible.” I wish you and your mom the very best.
Meet CreditCards.com’s reader Q&A experts
Does a personal finance problem have you worried? Monday through Saturday, CreditCards.com’s Q&A experts answer questions from readers. Ask a question, or click on any expert to see their previous answers.