Joss recently wrote Steve Rhode (the Get Out of Debt Guy) and asked for advice about a student loan her father took out to help finance her college education. Joss co-signed the loan but understood that her father would pay the loan back. He didn’t.
Joss didn’t know her father was not paying down the loan until it showed up on her credit report. Unfortunately, although Joss’s dad bailed on his commitment, Joss is responsible for paying back the loan.
Remember that venerable old saying: Never lend money to a friend because you will lose them both.
This same advice applies to co-signing student loans. Don’t do it, because it is an excellent way to break up a family.
Banks that issue private student loans almost always require the student to find a co-signer–and that co-signer is usually Mom, Dad, Gramps, or Grandma.
It may seem like a good idea at the time–one for all and all for one. But if the student doesn’t pay back the loan, the bank is coming after Mama, Pop, Granny, or Old Granddad.
Conversely, as in Joss’s case, if Pop takes out a student loan to help pay Junior’s way through college and kido co-signs the loan, kido will be personally on the hook if Pop skips town.
How do people find themselves in the situation of being asked to co-sign a student loan? I think, in most cases, the student maxes out on federal student loans and needs more money to continue going to college.
The student takes out a private student loan and gets Mom or Dad to cosign. Or Mom and Dad take out a private loan, and junior cosigns.
This is never a good idea. In fact, if Junior needs to take out private loans to attend college, Junior should go to Plan B. Junior should either drop out of school, go to work, and save enough money to return, or Junior should transfer to a cheaper college.
If there is an exception to this advice, it does not now occur to me.