Cosigning a student loan - a sure way to ask for troubles!
Cosigning a loan is rather adventurous thing in itself, but cosigning a student loan is another matter altogether. It is more dangerous than any other credit related cosigning as student loan is yours for life. It has no statute of limitations, can't be discharged under bankruptcy almost at any circumstances and is often creating a havoc on cosigner credit report, due to a messy consolidation or a deferment status. The student you cosigned for, doesn't even have to default on a loan, for you to start having an uncomfortable feeling in your stomach.
Private student loans are all credit based. Not only they require a decent credit rating but, the better credit rating often means the better interest rate and lower fees. And as a caring parent you want the very best for your child who at the young age doesn't have credit history, or manage to ruin very quickly. When such a child is applying for a credit-based private loan, like Sallie Mae Signature Student Loan or Tuition Answer Loan for example, getting mom or dad to cosign sure helps. Even in case the perspective student has an established credit history, many private student loans have a tiered interest rate structure in which those with excellent credit can enjoy far superior terms. As a result, if your middle score is 783 vs. 652 of that of your child, you want to cosign to get your baby a loan with much lower rates and fees.
The problems related to cosigning student loans, however, that can ruin not only your credit, but sleep, mood, appetite and affect your life rather bad, are numerous and to put is simply very, very annoying. Having not only bad, but simply messed up student loan can be compared to having an chronic ulcer. While it is not terminal, it can get rather nasty for sure in the most inopportune time.
Suppose you want refinance your house or even buy a car. Everything is fine and dandy, only you have a student loan in deferment status on your credit report. Your child doesn't have to start repaying until three months later, so while the loan amount shows up on your report, the repayment terms don't. The lender wants to know what the monthly payments will be on let's say, $15,000 deferred loan. Is that going to be a $150 monthly hit to your check book over next 10 years, or $230 payment over only 6 years? Remember once you cosign, the monthly payments are counted as they were yours. Now you have to get those terms, either from student if he/she remembers which garbage can the paperwork flew into, or contact the institution asking them to furnish interest rate and number of months/years over which the loan will be repaid to a lender. Meanwhile the mortgage and car loan rates may worsen.
I you are a parent cosigning a student loan, make sure that you get every shred of related documents. Student loan consolidation can create several duplicate records on a credit report. You may have some explaining to do, spend time getting needed paperwork for each consolidated loan, etc. Worse yet I saw few cases when loans which a parent didn't cosign for, ended up on that parent credit reports.
Of course, the worst which can happen is that your student kid defaults on that loan because of whatever reason, and you now have no choice but to start paying it yourself. That is why cosigning student loans has to be considered by anyone extremely carefully.
And what happens if after cosigning for your kid, he/she decides there are better things in life and drops out, goes somewhere to find him/herself. Not only you are responsible for the loan portion that is already disbursed, but you now stuck with the payments for nothing. You can't figure out what hurts the most, your heart or your wallet.
Wed Sep 10, 2008 01:09PM | Copyright: www.bad-credit-advisor.com | More in Student Loans | Comments (0)
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