In my post Say NO to co-signing student loans – Part 2, I shared some real life examples of how co-signing student loans can ruin a parent financially.
I shared that article on my LinkedIn page and with a number of LinkedIn groups. It attracted a surprising amount of feedback.
One of the comments was from a person who shared his story of how co-signing had worked out for him (and his father). Although I am not sure if the loans are actually fully paid back or not, he was basically offering the perspective of how co-signing can work out in certain cases.
I recommend you don’t co-sign regardless of what the circumstances are. I included my rationale for that in my response to the comment.
Here is the comment from Aaron and my response.
“My father co-signed my big loan, but with the understanding that he was just a signature. That’s where parenting came into play. I’d grown up being taught how to manage my money and understanding that I would be responsible for myself and my obligations out of college (really, I was financially independent for the back half of my schooling). I don’t like debt, but have built solid credit through this loan and was able to spend substantially more time with the books and in ministry on campus because of it.
While “never co-sign” is a good teaching, sometimes there are times when it’s OK. My dad’s credit score was not derailed, but far from ideal 7 years ago when he signed with me. Now, this is a place where he’s benefiting, also.”
Here is my response to Aaron.
“Sounds like the deal worked out OK in your case Aaron (I assume the debt has been fully paid off now). Glad to hear that. The reason I teach that the rule is to say no is that the risk is so high things don’t work out. I like the analogy of running across a six-lane freeway on a busy day as a short cut to get to the other side. If you make it without being run over, you saved some time. BUT, it really isn’t a wise thing to do regardless of how it turns out.
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That’s how I think about student loans and co-signing them. And while the plan is that it is just a “signature”, the lender considers the co-signer as the most important person agreeing to pay the loan. Because they would not loan it to the other person. They really don’t even care that the first person is on there because they are basically loaning to the co-signer as far as who they are relying on to make sure their money, plus interest, is paid back.
And with student loans being some of the nastiest loans that exist if things don’t work out for the student in getting their degree and a good paying job, I especially try to help parents avoid the risk of ending up in a situation where things don’t work out and they have ruined their financial future.
Thanks for your comments and sharing how things have worked out for you. I appreciate that. Your Dad sounds like a guy who has helped you make some good things happen in your life. He gets a high-five for caring and helping you.”
You can see from the comment that Aaron and his father are good people and focused on helping Aaron get his life off to a great start.
But be careful as a parent if the subject of co-signing student loans ever comes up.
The wise answer is to say NO. It’s not worth the risk of ruining yourself financially.