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Many parents are willing to do whatever it takes to ensure their children go to college — even if it means acting as a co-signer on a private student loan. But that financial move can put your financial future at risk.
So before putting your signature on the dotted line, know this: More than half of parents who co-signed on their children’s private education loan say it was a fateful decision that put their retirement in jeopardy, according to a new report from LendEDU, an online marketplace for student loan refinancing.
Thirty-five percent of co-signing parents say they regret being a co-signer for their child’s private student loan. Plus, more than one-third of parents who co-sign educational loans for their children do so without understanding the financial risks involved, says LendEDU.
Seth Frotman, student loan ombudsman at the Consumer Financial Protection Bureau, tells NBC:
“It’s portrayed to them as if they’re going to simply be a reference or endorser, when the truth is they’ll be obligated to pay this loan if something happens and the primary borrower can’t pay. We now see more and more cosigners going into retirement facing unprecedented levels of student debt.”
If your child misses a loan payment, the guarantor — or co-signer — is responsible. So one or more missed payments could damage your credit score. In addition, if your child can’t afford the loan repayment, the co-signer “is forced to assume full responsibility” for the repayment plan. LendEDU says:
Parents may think that by cosigning they are acting as a safety net in case their child cannot repay the loan. In reality, however, the parent and child are equal partners in repaying the loan.
LendEDU says parent co-signers also complain that co-signing has hurt their ability to qualify for other types of financing, like a mortgage or auto loan.
It can be difficult for parents to be released as co-signers on their child’s loan, but it’s worth a try. For more on this, check out “Ask Stacy: Is It Possible to Get Out of a Co-Signed Loan?”
Have you co-signed a loan before? Share your experiences below or on Facebook.