By Sandy Botkin
Here is a very sad case that EVERYONE should know about. Steve Mason was a pastor earning $75,000 when he guaranteed his daughter Lisa's student loans. He and his family were, however, devastated when his daughter died of liver cancer. Sadly, if this wasn't bad enough, the student loan bills started coming in since Mason had co-signed on the $100,000 in private student loans that his daughter took out for nursing school, and the lenders wanted their money.
To make matters even worse, although this is about as bad as it gets; Mason was unable to keep up with the monthly payments on top of all the other mounting expenses. Thus, the $100,000 balance ballooned into $200,000 as a result of late penalties and interest as high as 12%. Yes, student loans can be quite expensive. Even worse, student loan debt is not normally discharged in bankruptcy. Thus, he was drowning in debt.
Interestingly, if these had been federal student loans, Mason could have had the loans discharged or at least gotten some sort of financial assistance. However, since these were private loans, he had little recourse. He called each lender to explain his situation and begged for help. While they sympathized with him, they told him they weren't required to do anything, which is correct! As a result, he did contact some credit services, which got some of his loans down to 0% interest and reduce some of the debt.
Bottom line: Think VERY carefully about guaranteeing debt for your kids, particularly if they are private loans. If you do make a guarantee, consider taking out life insurance in order to avoid this potential disaster.
Material derived in part from Achieve Financial Freedom – Big Time!