Did the THECB Void Cosigned Student Loan Contracts?
Are you a cosigner for any student loans, specifically the Hinson-Hazlewood College Access Loan (CAL) funded by the Texas Higher Education Coordinating Board (THECB)? Did you cosign on that loan before 11/28/2005? If so, continue reading – you might find this information very interesting. In certain circumstances, I believe you should legally pursue your obligation as a cosigner to be lifted!
On 11/28/2005 a section of the Texas Administrative Code was amended to allow a longer duration for repayment of loans under the Hinson-Hazlewood College Access Loan program. Per the THECB’s website, one of the features listed of the CAL loan is:
Ten-year repayment period, with minimum monthly payments of $50.00 for balances under $30,000; 20-year repayment for balances of $30,000 or more
This is where it gets interesting. The 20-year repayment option was added as part of the 11/28/2005 amendment to Title 19, Part 1, Chapter 21, Subchapter C, Rule 21.62 (see full description in this page from the Texas Register) and has been made available to all borrowers, even those with existing balances that meet the eligibility requirement of a $30,000 balance! According to the notation in the Texas Register, the amendment was proposed “…to set loan terms that are consistent with general practice by issuers of student loans.”
Does anyone else see a big problem with this?
Let me give you an example. Say you go in to the bank with someone and cosign for them on a $5,000 auto loan. Per the terms of the loan, the borrower that you cosigned for has five years to pay the bank back. Then suppose the borrower decides to get a more expensive car and asks for seven years to pay back the loan. Do you think the bank would allow the borrower to do this without contacting you, the cosigner, to sign a new loan agreement? In essence, that’s what the THECB is doing here.
In my opinion, the method in which the THECB has managed the allocation and disbursement of the College Access Loan has been shady at best. Borrowers have been able to obtain cosignatures from multiple individuals independently in the past. To my knowledge, nothing has changed in the rules of the loans so this can probably still be done. The method of crediting the loans during repayment has also been “questionable” in the past. Repayment has previously been credited to the first loans originated by the borrower, causing loans taken with a second cosigner at a later date to continue accruing interest for years! But alas, Chapter 21, Subchapter C, Rule 21.62 allows for this:
(h) Application of payments. In accordance with the terms of the promissory note, the Commissioner shall determine the priority order in which payments shall be applied to interest, late charges, principal, collections costs and any other charges.
Sadly, this means that the first poor sucker that cosigns on a CAL loan or loans for a student might not know for sure exactly how long the responsibility is for paying the loans back. If they cosign for less than $30,000 they will think that after ten years in repayment the loan will be paid back and their obligation as a cosigner lifted. But watch out! If this first cosigner feels that the amount is getting to high to guarantee, the student borrower can go to another cosigner who is oblivious to the first set of loans in existence and, if stupid enough, ask for even more money using this new unsuspecting cosigner!
But wait, there are two different cosigners for the loans, so they are treated as two separate loans by the THECB, right? Wrong.
Let me paint a real sad story for you. Let’s suppose that a little girl (a high school graduate) has decided that she wants to attend an overpriced private university that is too expensive for her to realistically afford. This girl decides that the local junior college is just not good enough for her and, disregarding all logic and reason decides to attend the overpriced university anyway. She asks her older sister to cosign for her first two years of attendance at this university. She’s reluctant to refuse her younger sister’s request because her family would blame her for preventing this girls dreams from coming true, so she cosigns against her better judgment. Two years and four semesters later the older sister has cosigning for almost $13,000 in CAL student loans.
This little hypothetical story gets better. Keep reading…
Suppose the older sister has realized that she is getting way too deep in this mess, and that if her younger sister should default on the loans she might have some difficulty paying back more than $13,000. So she refuses to sign any for any more semesters. She knows that in 10 years after her little sister graduates, she can rest easy knowing that the loans will be paid off. She won’t have to worry about being financially responsible after the 10 years or so has elapsed, because the loans will be paid off.
Thank goodness that the older sister came to her senses. Now she can plan to possibly quit working one day and pursue her own dreams, right? Let’s see if the little sister even gave any thought to what impact cosigning these loans would have on her older sister’s plans…
The little sister, disgruntled that her older sister won’t cosign for over $30,000 in student loans, goes to their cousin and asks her to cosign for the remainder of the loans. The cousin agrees to cosign, and the little sister eventually graduates from the very expensive university. She comes away with a degree she could have received had she attended a much more affordable college.
Oh, it gets even better. Ready for the real kicker? Read on…
Now, fast forward a few years after the little sister’s college graduation. The little sister gets married to a real swell guy, and manages to obtain deferments to her loan repayment schedule for various reasons. Let’s say, hypothetically, that this girl’s husband stayed unemployed for a period of years, couldn’t manage to graduate college because he was depressed, yet managed to play a productive online computer game in all the spare time he had while his wife went to work every day. Hypothetically, of course.
Around the time the first group of student loans her older sister cosigned should about be paid off, the THECB decides that borrowers with $30,000 or more in existing student loan balances, even cosigned loans, should be able to extend their repayment period to 20 years!
There’s a point to this hypothetical little story. Don’t ever cosign a loan for someone. Ever. Just don’t do it. It’s not worth it. Period.
If you are a cosigner for a borrower that has CAL loans from the THECB and the borrower has defaulted on the loans after extending the term of their loans, call the THECB at (512)427-6340 and file a complaint. In fact, ask for your complaint to be forwarded to the THECB legal counsel.