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Home » FAFSA, Financial Aid News, Student Loans Info

Should Parents Co-sign a Student Loan?

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Yesterday, we talked about whether or not paying for college should be the parents’ responsibility. At the end of the post, I asked what you thought about cosigning a student loan. Is co-signing a great way for parents to help out their kids with the rising cost of college? Or is co-signing a slippery slope that does nothing but hinder both parties?

Lots of financial experts out there have an opinion on this matter, and most of them say: Don’t do it! For example, here’s:

Why do the experts say not to co-sign?
Whether it’s for a car loan or a student loan, co-signers are required by lenders when they think the person asking for the loan has a high likelihood of defaulting on the loan. In other words, if your kids need you to co-sign a loan, that’s because there is a pretty good chance that their loan will become YOUR loan.

If and when the primary lender misses a payment, the lender will come to the secondary lender (aka the co-signer) for money. In the meantime, your credit history will be blemished, along with your child. If neither you, nor your child, can afford to make the payment, then the loan will go into default — which is a major ding on your credit record.

Now all this doesn’t mean that your child is a bad or irresponsible person. It just means that statistically, young adults without a guaranteed source of income (which is most college students) are a pretty lousy credit risk.

But I can’t afford college unless my parents co-sign a loan
This is the emotional lynchpin that convinces many parents to co-sign a student loan. The thing is that only private student loans can require you to have co-signers. Federal student loans do not require co-signers. Not only that, they generally have better terms, such as lower interest rates, more flexible repayment options, etc. Bottom line: If you absolutely cannot afford college without loans, fill out the FAFSA and try to get yourself some federally guaranteed student loans, like a Stafford loan or Perkins loan.

So, what do you think? Is co-signing the next-best way for parents to help their kids who want to go to college, despite the potential risk? Or, if you think co-signing is never a good idea, what do you think a cash-strapped college student should do instead?

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