Should You Co-sign for Your Child on a Student Loan

 

Every parent wants to help their child to become the best they possibly can. In the United States, we have been sold a bill of goods that includes higher formal education. Therefore, it is very important for most parents to want to see that  their child receives a higher formal education. With education costs constantly rising, student loans have become very important in obtaining higher formal education. Should you co-sign for your child on a student loan?

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Was this loan Co-signed? (Photo credit: Wikipedia)

Implications for You to Co-sign a Student Loan

Co-signing any note for anyone is a serious matter. It means you are guaranteeing to pay 100% of the loan if for any reason the person or persons you co-signed for defaults on their payments.

The implication to co-sign a student loan means that if your child defaults on the loan, the lending institution can come after you for the balance of the loan including interest, fees, and penalties. You can work out payments on the loan if the institution will allow you to do so, or they can ask for 100% payment of the loan on demand.

If you cannot agree to terms with the lending institution on the student loan you co-sign, the lending institution has the right to go through the legal constraints of collection. Although a student loan can not be discharged by filing for bankruptcy protection, a lending institution will still have to go through a court of law to get a judgment against you or to garnish your wages if you live within a state that allows such.

Unless you have a legitimate hardship case, the student loan debt is a debt that will follow you as a co-signer until the debt is paid in full or until your life has ended, whichever comes first. A hardship case is when you have qualifying financial hardships where you cannot possibly pay off the student loan in your lifetime. The process for determining a hardship exemption is usually determined within the bankruptcy process. It is very hard to do.

Should You Co-sign for Your Child on a Student Loan?

It is probably never a good idea to co-sign for your child to receive a student loan. Why? If your child qualifies for a student loan, most government loans do not require a co-signer. Any private loans requiring a co-signer place you in a position to guarantee the future, something I have found a parent just cannot do.

Here is a personal testimony from the wife of a husband whose father co-signed his student loan. This testimony was provided on a bankruptcy forum website:

“Yesterday my husband received an email from his father saying that he will be suing him concerning a private student loan. Me and my husband had a chap 7 discharge 3 years ago and have since not really acquired anything of value or gained a substantial increase in income. My husband has a consolidated private student loan in the amount of $52k. The monthly payment is almost $500 a month, and the father has been paying half. The father recently decided to retire at 58 and doesn’t want to pay anymore. He said he found an attorney that is going to sue my husband for all the money he has paid towards this loan over the last several years and also have his name removed as cosigner on the loan. My husband has applied with the loan company to remove his dad as cosigner to avoid “bad blood”, but has been declined due to the bankruptcy and no assets to borrow against, and they also refuse to modify the monthly payment in any way.”

It is the opinion of this writer that the father will not be successful at a law suit to remove himself as co-signer unless he can prove a hardship case. That is why I think it is a bad idea to co-sign for your child’s student loan.

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