Breaking News
0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Your money: Cosigning a student loan? Be prepared to pay

Stock MarketsMay 17, 2019 06:11PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. FILE PHOTO: Messages and artwork are pictured on the top of the caps of graduating students during their graduation ceremony at UC San Diego in San Diego

(This May 16 story corrects 10th paragraph to clarify that 96% of cosigns are for undergraduate loans.)

By Beth Pinsker

NEW YORK (Reuters) - Is your college-bound child a good credit risk?

Consider this very carefully before cosigning a private student loan.

Some 49% of private student loan cosigners over age 50 end up paying some of that debt, according to data released in May by the AARP Public Policy Institute. Half of them, mainly parents and grandparents of the borrowers, voluntarily do so to help out. But the rest pay only when the student defaults.

"Some people cosign and don't realize that they will be responsible ultimately if student borrower does not pay," said Lori Trawinski, director of banking and finance at the AARP Public Policy Institute.

The risks go beyond just having to pay bills. One missed payment will tank credit scores of both the borrower and cosigners. Miss more and you go into collections, which will damage all of your finances for years to come.

It is very easy for months to pass in default if the student is trying to hide what is going on, said Ken Ruggiero, president and chief executive of Ascent Funding, a private student lender based in San Diego.

"There is confusion about who owes the bill. Meanwhile, the calendar is ticking by," Ruggiero said.

LOAN OPTIONS

Private student loans make up about $120 billion of the $1.5 trillion in U.S. student loan debt, according to the AARP study. Almost all are cosigned loans, because students rarely have the credit history or income to qualify on their own.

At College Ave Student Loans, which has issued $350 million in private loans, for instance, 96% of its undergraduate loans are cosigned.

Families typically turn to private loans to cover shortfalls after they exhaust the limits of federal loans for students as well as their savings.

Parents can also get federal Parent PLUS loans, which come with low interest rates, very few restrictions, and some income-based repayment options. But, according to AARP's data, more families turn to cosigning private loans in students' names.

"Both are pretty poor products in terms of protections and options," said Adam Minsky, an attorney who focuses on helping student loan borrowers in both Massachusetts and New York. That said, he recommends a Parent PLUS loan over cosigning a child's student loan.

Interest rates are a key factor. The 2018 rate for PLUS loans was 7.6%, while private loans vary. At Ascent, which has about $50 million in loans to date, variable rates range from 4.23% to 13.23% and fixed options range from 4.98% to 14.16%, depending on your credit history and other factors.

Even Ruggiero said of Parent PLUS loans: "If you have bad credit, it's a screaming deal."

Another point to consider before you sign a loan is consumer protection. Borrowers can discharge a federal loan in case of a disability or death, Minsky said. Private loans do not offer that option, and parents could be on the hook, even if their child passes away.

Cosigners can ask to be taken off a private loan if repayment is going well. But the process is not transparent or simple.

"Lenders have total discretion. Even if you meet requirements, they don't have to go through with it," said Minsky, who has rarely seen it happen.

The easiest way to avoid bad loan choices is to pick a school the family can afford.

"We need people to not have to rely on debt to finance education, and we need more options that are cheaper," Minsky said.

Your money: Cosigning a student loan? Be prepared to pay
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (1)
Lynn McCord
the907man May 16, 2019 6:02PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
yeah, probably better to just teach your kids how to flip burgers. Thanks Reuters for informing us hillbillies that cosigning a loan means we're jointly liable.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email