Singletary: Alarming issues with co-signing child’s loans
By Michelle Singletary
Published: March 8, 2017, 6:01am
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Your children want to go to college, and you’ll do whatever it takes to get them the education you believe is a prerequisite for prosperity.
But how far would you go to help fund their education?
Would you risk your retirement? Or your good credit name?
By May 1, high school seniors nationwide will have to decide where they want to attend college in the fall and send in their deposit. Not long after, they’ll be hit with the first full bill for their education. And many will need their parents to co-sign on a private student loan.
Students can borrow from the federal government on their own, without even having to get a credit check. But if that borrowing comes up short — and it will for lots of young adults — there’s the private student loan market, which does look at credit history. This means that many of these new borrowers will need a co-signer. Cue the parents and their good credit name.
But a new survey shows that many parents don’t fully understand the consequences.
LendEDU, an online marketplace for student loans and refinancing, conducted a survey of 500 parents who have co-signed on their children’s private student loans.
“Our survey showed that a significant number of parents are, in fact, hurting financially as a result of acting as a co-signer,” said LendEDU’s Nate Matherson, co-founder and chief executive.
Here are some highlights of what the survey found:
• Nearly 57 percent of parents said their credit score has been negatively impacted.
When you co-sign, your good credit score can become vulnerable. If the primary borrower makes a late payment, that negative action dings your credit history, too. It’s just as if you made the late payment, because the loan is yours too. More than a third of parents surveyed by LendEDU said their children have been late on a payment.
Your credit score can also be negatively affected because you’ve increased the amount of debt you owe. Keep in mind that when you co-sign, you are equally and fully responsible for the debt.
• Fifty-eight percent of co-signing parents said their children have asked them for help making monthly payments.
• Thirty-four percent of parents told LendEDU that co-signing has hurt their ability to qualify for their own mortgages, auto loans or other types of financing.
• Fifty-one percent said the loans have jeopardized their retirement savings.
When parents were asked if they understood the risks of co-signing, 33 percent admitted they didn’t.
More than a third (35 percent) of parents said they regretted making their decision to co-sign.
Matherson estimates that there is $120 billion in co-signed private student loans in the U.S. Each year, approximately 1.4 million students borrow using such loans, he said. And about 90 percent of the loans are co-signed.
Interestingly, LendEDU polled college students asking whether they thought their student loans would be forgiven. Nearly half thought they would qualify for the federal student-loan forgiveness programs after graduation. But the truth is that many won’t. Even if they do, they still have to make 120 on-time payments.
More than half of all young workers worry about repaying their student debt, according to a separate survey by American Student Assistance.
If you’re a parent considering co-signing, the results of these two surveys should give you serious pause. And if you decide to co-sign anyway, understand that there’s a great likelihood that the student debt your child accumulates will impact your own financial situation. Make sure you can afford the payments.
Michelle Singletary welcomes comments and column ideas. Reach her in care of The Washington Post, 1150 15th St. N.W., Washington, DC 20071; or singletarym@washpost.com.
