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Should Parents and Family Members Co-Sign on Education Loans?

Feb 19, 2013 Jennifer Williamson, Distance Columnist | 0 Comments

In this difficult economy, it’s not unusual for new graduates to struggle in paying back their loans. When that happens, responsibility often falls to the co-signer—usually a parent, grandparent, or other family member—to pay.

Many parents and family members want to give their children and loved ones the best opportunities in life—and may take on loans in order to help the student get into their top-choice school. However, many co-signers don’t realize until later that they are equally responsible for payment on student loans—and that they can’t afford the burden.

When considering whether or not to co-sign on a student loan, here are a few things you should keep in mind.

Teaching responsibility vs. crushing your child’s prospects

Some parents choose to make their children fully responsible for their own student loans—in order to teach the children financial responsibility. For some children, this can work—but for others, it can backfire. In this economy, many new graduates take a long time to land a job with decent pay and benefits—and your child could be underemployed or unemployed for a long time.

A crushing student loan debt could keep your child from taking a risk that could lead to better opportunities—moving from a paid cashier’s position to an unpaid internship in an industry they really want to work in, for example. And it can keep children dependent on their parents in other ways—by preventing them from being able to afford to move out on their own, for instance.

See Also: Online Degree Programs

Your child’s education vs. your retirement

Many parents and other family members wind up sacrificing their own retirement accounts in order to pay back student loans. However, most financial planners advise making your retirement the top priority—because you won’t have time to make back that money before you need it. It can feel wrong to put your own needs before your child’s—but you also don’t want your child to have to support you in your retirement in exchange for paying back their student loans.

See Also: Online Colleges and Universities

Your child’s education loans vs. your education loans

If you are a recent graduate yourself—or even if you graduated a long time ago, but are still paying back your own loans—taking on a child’s or family member’s loans as well can be too heavy a burden to bear. If you have your own student loans to deal with, think carefully about whether you can afford to be a co-signer for someone else.

Your child’s education loans vs. other added costs

Maybe you don’t have your own student loans or other debt, and your retirement fund is healthy. But in a challenging economy, you could be facing new costs in a few years that you aren’t anticipating now. For instance, your child may need to move back home or stay home after graduation from a traditional or accredited online college—chances are that will happen before you’ll have to start paying back on their loan. Your own job could be in danger in four years. Or college tuition could go up—it’s gone up 15% just between 2008 and 2010—and leave you and the student on the hook for more than you planned on. Either way, it may be best not to co-sign unless you have a solid financial cushion.

It’s not always the best advice to choose not to co-sign on a child’s loan—or assist in paying it back. It’s true that student debt can dramatically reduce a new graduate’s options—and sometimes a parent or another family member is better placed financially to handle the loan. However, it’s also important to consider whether you really can afford it—and not barely, but easily. Because chances are, before you’re called upon to pay, the interest rate will have gone up and the total bill will have risen.


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