4 Things to Consider Before Agreeing to Cosign a Student LoanParents will do almost anything to position their children for success. With college costs rising and student loan debt estimated at a whopping $1.5 trillion, it’s no wonder parents and even grandparents are stepping up as cosigners. A recent survey found that 92% of private undergraduate student loans included a cosigner.
But is that the right financial move? According to a Money Magazine survey, on average, borrowers between the ages of 45 and 74 owe more money in education-related debt than younger college graduates. For those in the sandwich generation, who care for their parents as well as their children, the financial burdens can be especially tough.
Before you sign on the dotted line as a cosigner to help fund your child’s educational dreams, here are few things to consider:
Explore all federal aid options: Make sure students have applied for federal aid from scholarships and grants to federally backed loans and work-study opportunities. Don’t assume you are not eligible. Filling out the free application for Federal Student Aid is time well spent.
Know your child: Be honest. Is your child financially responsible? Will they tell you if they are struggling to make the monthly payments before escalation and/or penalty fees are applied? It’s your credit and financial future on the line. If you have any doubts about the ability to repay the debt, now is the time to discuss it and come up with a plan of action for worst case scenarios.
Read the fine print: Take the time to read through everything. Understand the terms for default and any discharge clauses as cosigner. Is there a cosigner release option, where after certain conditions are met, your name can be removed from the loan? Is there a way to refinance the loan?
Have a clear picture of your financial situation: Can you afford to take on additional debt? Have you funded your retirement and an emergency savings account?
It is important to weigh your financial situation both now and in the future before proceeding.