If your credit score is low or you don’t have credit yet, parents may have to cosign a student loan. However, it is a good idea to remember to cosign student loans with caution.
A student loan cosigner needs to know what they are agreeing to because it is a legal contract. Once the paperwork is cosigned, the cosigner will be required to meet the requirements of the contract, including the payment terms and interest amounts.
Cosigners will be obligated to serve as a backup payment source for the life of the loan. That’s why they should sign student loans with caution.
For federal loans, the only way a student loan is written off is in the event of the death of the primary borrower. But this is only true of federal loans. Private loans may still hold some liability for parents or grandparents who have co-signed a student loan.
This means that in the event the student defaults on the loan, the lender can demand payment from the cosigner. This includes taking property that belongs to them or freezing bank accounts in some cases.
Steps to Take Before Cosigning
It’s important that parents or others speak with their child as they are preparing to go to college. Discuss all of the options with them and ask them what their career goals are. Then do some research together on the average salaries of the career they are choosing. Everyone wants their child to get to work in a career that they love. But they should also learn to think in a pragmatic way and think about how they will make money.
Being aware of future income can help mentally prepare students to repay their student loan when the time comes.
So that is why many say to sign student loans with caution. At the same time, having a co-signer is one of the best ways for students to go to college. Using the higher credit rating of a co-signer may allow a college-bound young person to be eligible for more options than if they tried to use their own rating.
As long as the young student understands the risk parents are taking on and they agree to pay back their loan, it should be a viable option in some cases.
If you’ve already cosigned a student loan and are looking at options for cosigner release, check out our article here!