Money Talks, So Should You

Ask Jane: Should I co-sign a student loan?

Jane Bryant Quinn
by Jane Bryant Quinn, Dimespring Contributor  (@janebryantquinn)

No. Don’t co-sign. Develop a paralysis in your writing hand. You might bend this rule for a child, but it’s a risk.

Tell anyone else (niece, nephew, close friend) to raise the money they need in some other way. Say “no” to live-in partners, too. If your relationship breaks up and your partner walks, you’ll be holding the bag.

When you co-sign a loan, you become equally liable with the borrower for repaying every dime. The payment history goes on your personal credit report. If the borrower doesn’t pay on time, you’re in default. The lender will come after you.

These student loans are typically large, the late fees huge, and there’s no escape. Your credit score goes down the drain.

READ: Three smart ways to pay back student loans

Whether to co-sign even for a child is a tough call. You want your child to go to the college of his or her choice. Presumably, you can contribute some cash and the child will take the maximum federal student loan.

If you still need more money, you have three options. One  choose a different college that’s within your means (my favorite option). Two  borrow the needed money yourself, using a federal PLUS loan for parents or a home-equity loan (you might still be making payments when you retire). Three  co-sign a loan that your child takes from a bank or other private lender.

Naturally, parents hope that their child will graduate, get a good job and pay off the loans. But what if your child is sloppy about finances and doesn’t pay on time? What if he or she gets a low-paying job or no job at all and can’t afford the payments?

READ: Tips on how to manage your digital afterlife

Federal student loans are the child’s problem, not yours. But a private loan that you co-signed is your responsibility. If your income is modest and you can’t pay, the lender might  just might  restructure it, to stretch out the payments or reduce the interest rate temporarily.

But the loan doesn’t go away. The lender can bring a judgment against you, or sell the loan to a bill collector that will harass you for payments. Private student loans can’t even be discharged in bankruptcy, unless you face an extreme hardship. The loan, and a rotten credit score, will stick to you like a burr for life.

So don’t co-sign a private student loan unless you have the wherewithal to pay. Otherwise, beg your child to get his or her degree at a more affordable school.

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Jane Bryant Quinn is a nationally known commentator on personal finance, with books and columns read and trusted by millions. In her long career, she has established herself as America’s most reliable voice for people trying to manage their money well. Read more of Jane's articles here