Co-signing is almost always done as a loving gesture. You want to help your child or a loved one pursue their dream and create a future that is bright and full of promise.
Parents, even grandparents, generally want to help. That desire leads many people to co-sign a student loan or take out a Parent PLUS loan. But the signature you provide on that student loan document creates a commitment between you and the lender, whether it’s the government or a private lender.
And unfortunately, the lender could care less that you are a kind and loving person trying to help a loved one. They could care less that the loan is funding access to college for a bright, young person. They don’t care if that person is your child… or a grandchild… or the neighbor next door. What they care about is making sure they get paid, and you signed a legally binding document that gives them incredible power to make damn sure they get paid.
You really can’t blame the lender for being so focused on being repaid. That’s what lenders do.
They loan money on the assumption that you’ll pay it back. And in this case, they know there’s little chance that they can get paid back from the borrower. That’s why they want a co-signer, a responsible party, on the line because that’s who they really consider they’re loaning this money to.
The loving gesture in this whole thing is between you and your child. On the other hand, co-signing a student loan is a pact with a lender, a hardcore lender that has the power to garnish your wages without a court order, confiscate your tax refund, take a portion of your Social Security payments, and more.
They have the power to ruin you financially for life.
There was a great article in the Wall Street Journal called New Peril for Parents: Their Kids’ Student Loans that had a number of examples of how easily co-signing can go bad.
“People are confused about what it means to co-sign, and their ongoing obligation,” says Deanne Loonin, director of the Student Loan Borrower Assistance Project at the National Consumer Law Center, a consumer-advocacy group in Boston. “When they come to understand that they are equally liable, the regrets set in.”
Please don’t confuse your desire to help a loved one with the act of co-signing a student loan.
And this example is heartbreaking.
“In some cases, grandparents are getting pulled into the debt morass too; some of them co-signed when a student’s own parents didn’t qualify to help out.
Pam Gerke, a 49-year-old divorced fourth-grade teacher in Davison, Mich., owes $98,000 on her own student loans—too much, she says, for her to co-sign her daughter’s loans for beauty school. So Ms. Gerke’s mother, Darlene Kuhn, did so instead.
After the daughter dropped out and quit making the $200-a-month payments on her debt in 2010, the 72-year-old Ms. Kuhn took over. She says she fears her credit rating will fall, so she draws from the $1,400 a month she collects in Social Security—her only income since retiring. “I tried to do a good deed,” she says.
Indeed, both Ms. Kuhn and Ms. Gerke say they are bitter about the whole experience. (The daughter declined to return phone messages.) “My mother would rather not eat than not pay her bills,” Ms. Gerke says. “I’m mortified as a mother and a daughter.”
Explore other ways to show your love that don’t carry the risk of ruining you financially and/or ruining your relationship with your children.
Maybe you could help with some of their books, maybe some tuition assistance, help them in searching out grants and scholarships, coach them in finding a job while they go to school, assist them in selecting a college they can afford, or possibly offer to have them live with you for a short while.
There are lots of ways you can express your love without jumping into bed with a student loan lender.
Please explore all those loving options and say no to co-signing student loans. And say no to Parent PLUS loans.