Co-signing a private student loan for your son or daughter makes financial sense, but you'll want to make known that the repayment of these loans is on their shoulders, not yours.
Your adult offspring is getting ready to attend college this fall and you’re confident that she will succeed. After all, good grades, excellent study habits, and valuable extra-curricular work while in high school has gotten her this far.
With the good academic record have come several scholarships, a grant, and with the monies saved from her 529 college savings plan, almost enough money to cover costs for the coming academic year. Unfortunately, tuition is a bit higher than expected, dorm costs have increased, and declaring a dual Psychology/Sociology major means she’ll be needing to buy a lot of textbooks plus a new laptop and printer.
Quite suddenly you and your daughter are realizing that she is coming up short financially, not by a whole lot, but about two thousand dollars for the first academic year. You’ve looked at federal Stafford loans and found out your family isn’t eligible, but you know that your daughter can get a private student loan and at a competitive interest rate at that. One small question remains: should you co-sign her student loan?
Like so many families planning to send their grown children off to college in a matter of weeks, you may be scrambling to find the funds to pay for school. Add in more money for gas and food and things may be very tight come this fall.
Co-signing a private student loan might make sense for your family especially when the following applies:
Your child doesn’t have a sufficient credit history to obtain a loan on their own. Even if eligible, the interest rate could be very high come repayment time.
If you have excellent credit, the interest rate for the loan will likely be significantly lower with your name on the loan.
Of course, if you co-sign the private student loan there are some risks involved, namely:
If your child fails to repay the loan, then you’re responsible for making payments.
If you choose to co-sign the student loan, make sure that you have copies of the paperwork on hand. You need to know when the loan is due, to whom payments are made, and you need to get copies of quarterly statements to verify payment.
Although your son or daughter may be showing a lot of responsibility right now that doesn’t mean that they won’t make a bad decision or a mistake that could ding your credit. By co-signing a private student loan you can save your adult child hundreds even thousands of dollars in interest charges, but there are always risks involved. Make certain that your child understands their responsibilites to repay their loans, keeping a burden off of your shoulders.
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