pb4uski
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Something to look into: if you have not yet paid the loan off, you can offer the bank payment in full in exchange for an assignment of the note to you. In other words you buy it from them similar to how mortgage companies sell notes to each other. The benefit is that you now own the debt outright and can take any number of actions to collect. One option would be to turn it over to a collection service. This strategy will likely only work if the loan was taken through a bank and not the student loan program. Also, if the debt is already paid off, it probably was stamped paid and they likely no longer have the documents. I used to work at a bank and we would occasionally have co-signers request to purchase the note. We always accommodated these requests. Lastly, regardless of the route you take to collect, you need to be mindful of the statute of limitations. Your time to take action is limited by law.
If you do this and are unable to collect any money, does the bad loan turn into a tax deduction?
That would be a question for an accountant. Might be able to file a 1099-C with the IRS, though. The niece would then owe taxes on the unpaid loan, which is considered income to the IRS.
I like this idea since you're going to get stuck paying anyway since it puts you in the drivers seat on collecting... your niece has a direct legal obligation to you since you now own the note. Due some due diligence but I think you might be able to record a capital loss just like you would if you purchase a bond and it turns out to be worthless and the harvest gaisn to offset the loss or use the loss against ordinary income for up to $3k a year.