Parents can have a major impact on how their children are affected by student debt. Some parents are wealthy enough to completely pay for their children’s’ schooling, so that their kids do not need to borrow any money to finance their degrees. However, since it currently costs an insane sum of money to attend college or graduate school, many students will need to borrow money in order to pay for their educational costs. Nevertheless, parents can still cosign their children’s student debt to make things easier on their kids, and there a number of cosigner considerations to keep in mind when deciding if you should cosign your children’s student debt.
For those of you who may not know, cosigning student debt is when a parent or someone else agrees to be liable for student loans if a borrower is unable or unwilling to repay the student loans themselves. Many students do not need to have a cosigner for their student loans, since they may not need to borrow much student debt to finance their degrees, and they can borrow a smaller sum of money on their own. However, if your child needs to borrow a large sum of money to finance their education, chances are that they will need a cosigner to sign their student debt.
There are many reasons why lenders require numerous student debt borrowers to find a cosigner for their student loans. Students typically do not have an employment history or an established income source that they can use to demonstrate their ability to repay student debt. In addition, many students do not have a lengthy credit history, since they are just beginning their adult lives. In any case, cosigners are necessary to provide lenders with an extra sense of security when lending student loans to certain kinds of students.
One of the most important things parents should evaluate when thinking about cosigner considerations is that not all parents are eligible to cosign their children’s student debt. The reason why this is one of the most important cosigner considerations parents should keep in mind is because parents should take steps as soon as possible to ensure that they to be eligible to cosign their children’s student debt. If a cosigner has a spotty employment history or a bad credit score, they may not be able to cosign their kid’s student loans, so it is important to improve your credit if this might be an issue.
I had problems with the finances of a potential cosigner during my student debt repayment saga. The only living parent I had was not able to cosign my student loans due to financial difficulties, and I had to ask my grandmother to cosign my student loans. Fortunately for me, I did not need to have much of my student debt cosigned, and my grandmother was able to do this for me. As guest articles have also recounted, other relatives could also cosign a borrower’s student loans. In any case, if you think that you may not be able to cosign a child’s student loans, you should have a backup plan in place so that your child can pay for their educational expenses.
One of the most overlooked issues parents fail to keep in mind when evaluating cosigner considerations is for a cosigner to make it clear that the student will be primarily responsible for repaying cosigned student debt. Many parents have reached out to me after I started Student Debt Diaries and related that their children are not repaying student debt that a parent cosigned. Some children are unable to repay student loans since they are not financially able to do so, and after the Great Recession, this was a more common occurrence. However, some children simply refuse to repay student loans, and this requires that cosigners step in and repay the debt themselves.
It is very important to make it clear right at the beginning of any cosigning arrangement that it is expected that the student will make all necessary payments on the cosigned loans. This will hopefully minimize any tension that may arise later on if a student is not repaying the student debt. It might even be worth putting this arrangement in writing so it is perfectly clear what the expectations are between the parent and the student loan borrower. Agreeing to expectations about repaying student debt is one of the most important of the cosigner considerations parents should keep in mind, since repayment arrangements can create much stress between student debt borrowers and cosigners.
It is also critical to keep in mind that student loan cosigners should do their research on the best student loan deals. Many cosigners take a passive role during the student loan cosigning process, and merely agree to sign up with the student loan company that the student debt borrower themselves have found. Indeed, the cosigner I used during my student debt repayment saga did not do any research on her own, and merely agreed to cosign the loan that I signed up for after very little research.
However, as this website has already detailed, student loan companies offer vastly different terms. Indeed, some companies offer interest rates that are nearly half the rates offered by other student loan partners. As a result, cosigners should do their own research to find the most economical student loan company with which to work. Cosigners are usually in a better position to research student loan companies, since student debt borrowers are usually young adults whereas cosigners are typically more mature. After all, cosigners could be liable for the cosigned student loans if the student loan borrower defaults on their debt, so it is wise to research the best possible student loan financing options.
In the end, cosigning student debt is a serious commitment, since cosigners can ultimately be liable for repaying the loans to which they are attached. As a result, it is important to have an agreement in place so that the student loan borrower and cosigner are on the same page about every aspect of the cosigning arrangement. In addition, it is important for cosigners to research different student loan financing options so that they are in the best position possible if they have to repay the cosigned student debt.