Student Loans

Cosigning a Student Loan – An Ugly Truth Parents Need to Know

Parents are always willing to help their kids in any way they can. It is simply a pre-programmed parental instinct. While it is expected to disappear once kids get ready to leave home, long-established habits die hard, forcing parents to oversee the well-being of their kids well into adult years. That is why so many parents take on the responsibility of assisting their kids to get into college, and, sometimes, even to pay for it.

Once kids are out of high school, it is time for a new exciting venture – getting into college. Besides many organizational and financial issues, preparation for college is full of new social and educational hopes and expectations. While it may be somewhat exhausting at times, it is a lot of fun to send your kid to college.

The best way to help your kids achieve a dream of higher education is to help them financially. With tuition costs being raised every year, college education is no bargain these days. This is especially true with prestigious private schools. Even public schools, featuring lower in-state resident tuition fees, are quite expensive when you add up all additional fees, book expenses, dormitory charges, and so forth.

There Are Plenty Ways To Assist Your Kids With College Expenses

Many parents who think ahead and have sufficient financial resources, have usually secured college financing for their kids by either saving money aside or participating in college savings plans, such as a 529 plan. Many just present a lump sum of money to their kids upon high school graduation to cover a part or, sometimes, all of college tuition and fees. Unfortunately, there are a number of families who were not able to accumulate enough savings due to many reasons to help their children with college costs. Very often, the only feasible way to assist children with college education is to cosign on their student loans.

Co-Signing a Loan Is Very Similar To Taking One Yourself

Cosigning a loan is almost like taking a loan yourself. A cosigner has to provide personal information to a lender, as well as to disclose his or her income and assets. Both, a signer and a cosigner are considered to be borrowers from the legal perspective, the only difference being that cosigner would have to make payments on the loan only in case of a default by a primary borrower.

Beware of Cosigning Risks

Putting your signature on any document incurs some kind of liability. This is especially true with financial documents. Therefore, before you put your signature on a legal document, such as a loan agreement, make sure you fully understand what you are getting yourself into.

There are many questions asked by parents willing to cosign a student loan regarding their liability. A simple matter of fact is that parents assume full responsibility to repay the loan if, for some reason, their child fails to do so. The worst case scenarios of loan consignment are as follows:

1. Your child becomes an irresponsible borrower and decides to give up on loan repayment.

2. Due to financial hardship your kid falls behind on payments.

3. Your child becomes seriously ill and/or dies, leaving you with the responsibility of loan repayment.

In all these cases repaying a loan becomes your responsibility, and a true headache. Should you fail to do so, your credit score would be severely damaged, and further collection activities may be imposed by lenders against you. Federal loans, however, waive a responsibility for cosigners to repay the loan in case of a death or terminal illness of a primary borrower.

There Are Always Alternative Ways

If you seriously doubt the ability of your kid to repay a student loan, there are other options to be considered. Your child may try to get a student loan by him or herself. While it may be difficult in case of privately funded student loans to obtain a loan without a parent cosigning it, most government funded loans are easily obtained without help of parents. Attending a less expensive school may be another option. Part-time job while attending college may be a partial solution to college financing also.

Once again, even if you decide to cosign a student loan, make sure you fully understand all implications and possible consequences and have a repayment strategy ready in case your child fails to pay off a loan.