To what lengths should you go to get a college education? In an ideal scenario, you could get a college degree without getting into debt. But I know from personal experience that graduating debt free may not be possible.
I graduated from undergraduate school with debt and from law school with debt. I wouldn’t be a lawyer if it weren’t for student loans. Not only that, but I went a step further – I had my mom as a cosigner on my private student loans from undergrad.
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Now that my undergrad debt (all $60,000 of it) is gone, I think the risk was worth it. But, that’s because it all worked out for me. I’m not sure I would have the same answer if things had turned out differently.
So, how do you know if getting a cosigner is worth it for you? Let’s look at the details of what having a cosigner really means.
What’s a cosigner’s responsibility?
Having a cosigner on your student loan means that someone other than you (the cosigner) is responsible for the loan if you don’t pay. Being a cosigner means that you will pay for the loan in the event that the signer fails to pay.
Typically, experts advise against being a cosigner because of the additional financial risk you take on. You cannot control whether the signer will actually pay the loan, so it’s a better for you financially to not do it.
If you need a cosigner in order to take out a student loan, generally this is because the lender isn’t convinced that you can pay the loan yourself based on your credit. Having a cosigner may be the only way for you to get the student loan you need, but it’s important to understand that, if you default on your student loan, the cosigner is responsible for paying for the loan.
Student loans are very difficult to have discharged in bankruptcy, so it’s a good idea to make sure the cosigner can actually afford to pay the loan in the event that you can’t. This will affect the credit of the cosigner, too.
Effects on the cosigner’s credit
If you have a cosigner on your student loans, those loans will appear on the cosigner’s credit reports as part of her credit history. For example, I repaid my student loans from undergrad, but the loans still appeared on my mom’s credit reports as loans with her name on them.
That can be a good thing for the cosigner if you make all of your payments on time. But any missed payments will appear on the cosigner’s credit reports, too. Future lenders of the cosigner will consider this debt before deciding whether to lend to the cosigner.
The bottom line is that by cosigning a student loan, the cosigner is taking responsibility for the loan and it could affect the cosigner’s credit.
The relational consequences of cosigners
Aside from the financial implications of having a cosigner (or being a cosigner), there is the personal effect. If you have someone cosign your loan and you have trouble repaying your loan, then family dinners just became a little more uncomfortable, at best. If you lose your job and can’t afford to make payments on your loan, you put the cosigner in a tough position. Naturally, this will make your relationship with him or her a challenge.
With a cosigner, you are mixing money with your personal relationship with that person. It’s a risk that can turn sour, even if you don’t mean it to.
If you ultimately can’t pay
To a parent, relative, or friend who cosigns your student loan, the greatest risk is that you may ultimately not be able to repay the loan at all (for example, if you die or become disabled). In either case, your cosigner is on the hook for the remaining balance.
The lesson here is: If you have a cosigner on your student loans, consider purchasing term life insurance and disability insurance. While you’re young, these policies won’t cost much, but will provide enormous relief to your loved one if something happens.
This is also a good reason to release your cosigner when possible.