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What to Know Before Cosigning a Student Loan

Cosigning a loan is a huge responsibility, and can come with massive personal repercussions if your child ends up defaulting on their loans. Here is a bit of information on loan co-signing, and what you can do before you get to the dotted line.
Signing documents

The decision to co-sign student loans for a child who is a college student may sound like a no-brainer, because what parent wouldn’t want their child to go to college? But co-signing a loan is a huge responsibility, and can come with massive personal repercussions if your child ends up defaulting on their loans. Here is a bit of information on loan co-signing, and what you can do before you get to the dotted line.

What does cosigning mean?

Once you cosign on a loan, you become legally responsible for the loan, and are liable for the debt if the original borrower fails to make payments. Even though you’re not the main name on the loan, cosigning means you accept 100% of the responsibility of the loan, as if you were receiving the money yourself. If it all goes sour, having this loan on your credit report can limit your ability to take out new forms of credit or refinance existing debt, too.

What to do before you sign

Loans aren’t just a financial burden; they’re a huge responsibility. So, before cosigning, you’ll need to have a serious conversation with your child about what could happen to their credit (and yours) if they stop making payments or go into default.

To protect yourself, you can also look into cosigner release, which relinquishes cosigners from their responsibility after the lender has kept up with monthly payments, on time, for a specified period (normally a few years).

Finally, think about any possible credit you might need to apply for in the next few years. Taking on a large new loan, even as a cosigner, could affect your ability to gain new credit. Need home repairs and thinking about refinancing? Cosigning a student loan could get in your way.

Alternatives to cosigning

Remember, only private lenders require cosigners. Instead of taking on private loans, see if you’re eligible for a Parent PLUS loan from the federal government. You can still ask that your child pay back that loan, but you’ll have more protections, and a likely lower interest rate.

If your child is having trouble qualifying for loans beyond the federal student loan limit, they should consider applying for more grants and scholarships. These can help them avoid debt altogether. In fact, before cosigning offer to help them find free money for college.

If all else fails, and you can’t (or won’t) cosign for a loan, it might be time to encourage a gap year between high school and college. Young adults who work full time can save a huge chunk of their paycheck to put toward their college tuition, especially if they’re still living at home. Your child might also want to consider studying at a more financially accessible institution, such as community college, even just as a start. Earning good grades at community college may also help them become eligible for more scholarships.

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