Wednesday, September 26, 2012

Should You Be A Cosigner On Your Kids College Loans

Student Loan Debt Bubble, 1980-2011
 (Photo credit: Occupy* Posters)
If your child is getting ready to head off to college, you are probably wondering if cosigning his loan is a good idea. Although you want to help your child get an education in any way you can, you are wondering if cosigning a student loan can come back to bite you in the future. For example, if your child is not able to start paying back on his student loans, you will be responsible for them. This will be a real burden to you, especially if you are trying to save for retirement. Before you decide to cosign your child's student loan, you really need to think it over carefully.

What Student Loan Options Can I Cosign?


Parents have two options for student loans: a parent plus loan and a private student loan. Parent Plus loans are federal loans that are created to supplement federal aid. Good credit is required to get approved for this loan and the student is not required to sign for it. Before you decide to cosign this loan, make sure your child has taken advantage of all available financial aid, scholarships and federal funding. Private student loans are offered by private lenders. To get approved for a private loan, a minimum income and credit history are required. Even if your child qualifies for a private loan, cosigning the loan could give him a lower interest rate. 

What Are the Benefits of Cosigning a Student Loan?


If financial aid or scholarships do not cover the entire cost of your child's tuition, cosigning a Parent Plus loan or private loan will benefit him. He likely does not have the credit history or enough income to qualify for a loan on his own. In addition to helping your child pay for his education, you will also be helping him establish a credit history. 

What Are the Negatives of Cosigning a Student Loan?


The biggest negative of cosigning for a student loan is that you are financially responsible if your child is not able to pay it off. If the loan is not paid as agreed, you will have collection agencies aggressively calling you until it is paid. This can negatively affect your credit history and might even put you up against a lawsuit. If you have weighed your options and decided that you do not want to cosign your child's student loan, you can inform him how to get a student loan without a cosigner. For example, your child can apply for a Stafford loan. This federal loan is easy to qualify for because you do not need an income or credit history. Government loans, however, do not allow a student to borrow as much as he wants. If your child has a full-time job and some established credit, you can also advise him to apply for a private loan to cover the rest of the costs. A private loan is more difficult to qualify for than a Stafford loan, but it doesn't hurt for him to try. 


Chad is a seasoned writer on topics such as student loans and saving money for college. You can follow him on twitter @studentloanansw.

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