Cosigning Student Loans?

[Teacher Terry]

Then say no advice and I don’t want to hear the truth about how rare it is to have loan forgiveness and it would be understood.

 

[stephenson]

1. No.
2. If you have the money and want to help, help after considering the factors.
3. What were her high school grades? Does she work hard? What is her major? Did she get into a great school, or just an expensive one because really wanted to go out of state and it will be fun?

If the answers to 3 paint a picture of an amazing young woman who works and excels and has a passion, 2 is the right answer.

 

[Cayman]

Your GD may be able to take the loan out without a co-signer for a slightly higher rate. She should look into this.

 

[ivinsfan]

Since we've been warned off giving an opinion I'll just thrown in how many GK do you have and have you/are you willing to do the same for one and all. What happens if you co-sign for one and she defaults and they then all follow that path? Can you afford that?

If you can't afford it might be better to sign for the third and/or final year in school, when you have a clear picture of if they will graduate and be employable. IMO loan money is a bigger risk in the first/second year if they drop out or flunk out.

 

[workmyfingerstothebone]

I've heard many bad stories concerning co-signing, never heard a good one. On that note, we previously told our GK's the amount we would pay for college/trade school. Anymore than that amount is up to them on how to pay.

 

[RunningBum]

I've heard many bad stories concerning co-signing, never heard a good one.

That's probably because "I co-signed on a loan, and the kid paid it back after getting out of school and I never had to even think about it again" isn't really much of a story to tell, is it?

I'm on the hook for a couple small co-signed loans with my son's now ex-wife. After a couple semesters of that I gave a couple of personal no-interest loans, with a promissory note signed. One of the loans is being slowly paid off, while the other is deferred until after graduation as agreed. It won't surprise me if I have to eat those loans, but it also won't surprise me if I'm eventually paid back in full. I don't regret taking the chance on a hard-working person who had a tough upbringing. I'm not going to get into the whole story but she really had very few options.

Back to the OP's questions, I would hope you and your wife actually look at the paperwork before signing so you know what it is. That's your best clue, rather than asking us what it is you are getting yourselves into. I'll admit it is kind of confusing, because I think a lot of it is private loans with government backing. That's what Sallie Mae is.

 

[Texas Proud]

From what I understand you cannot cosign for a federal loan... my son has gotten his without any signature from me...

 

[workmyfingerstothebone]

Actually RunningBum, that is a great story to tell.

Happy to hear stories of such responsible actions taken in this day an age.
Thanks for telling.

 

[EA-Sports]

Hmm ... I didn't realize that. Those are pretty small numbers and may explain the request to us. So apparently these really big debts that we hear about are primarily private loans.

Not really..approximately 90% of student loans in the US are federal student loans. There’s a limit for undergrad but no limit for graduate and parent plus loans. So when you hear stories of someone with high student loans usually it’s because that borrower got the capped undergrad and uncapped grad loans...or it can also be parents of the students not the students itself.

 

[Jeffman52]

Some interesting statistics can be found here

https://studentloanhero.com/student-loan-debt-statistics/

From that site this:

48% of borrowers who attended for-profit colleges default within 12 years, compared to 12% of public college attendees, and 14% of nonprofit college attendees.

 

[HadEnuff]

WE had the opportunity to co-sign a student loan for what DW and I were convinced was a bad choice (expensive private school for a questionable student) and we said no.

She managed to get the loans (which are now long in default) without our co-signatures. Not sure of the mechanism for how this happened, if she went to a different source, but clearly there is a way. This was 20 years ago, so maybe things are tighter now that so many defaulted loans are out there.

 

[SecondCor521]

As others have said, the reason private loans might be in the picture is that the size of federal loans for undergrad are capped.

The school starts with their sticker price, subtracts any merit scholarships, subtracts any financial aid, subtracts any federal grants, and subtracts any federal loans. What's left is what the family is expected to pay.

That amount may or may not equal what the FAFSA formula says the family can afford. If the FAFSA comes up with, say, $10K, and the school's leftover amount is $15K, then the kid has been "gapped".

In any case, whether it's $10K that FAFSA says, or $15K that the school says, sometimes families don't think they can or are unwilling to come up with either amount. So private loans are generally the answer.

Since private lenders don't have the government's ability to enforce repayment, for 18 year old kids without a job they're going to want a co-signer.

...

Another thing you can do is just pay the school directly. Then that doesn't come out of your $15K annual gift exemption amount. I'm not sure, but I think that such a payment or gift is treated by the next year's FAFSA process as untaxed income to the kid (and results in lower aid).

 

[pb4uski]

Granddaughter is off to an expensive school this fall. DIL asked DW if we would consider cosigning her student loans as DS/DIL credit is poor.

A a general principal I consider cosigning loans to be a bad idea. No need to discuss that here.

But ... I didn't think cosigning was necessary for student loans. A little poking around the internet tells me that it is not for government loans but possibly is for private loans.

Has anyone run into this? If there are government loans, why are private loans even in the picture?

Any update on what you plan to do?

 

[Hicks3456]

Very Bad Idea

Granddaughter is off to an expensive school this fall. DIL asked DW if we would consider cosigning her student loans as DS/DIL credit is poor.

A a general principal I consider cosigning loans to be a bad idea. No need to discuss that here.

But ... I didn't think cosigning was necessary for student loans. A little poking around the internet tells me that it is not for government loans but possibly is for private loans.

Has anyone run into this? If there are government loans, why are private loans even in the picture?

Unless you have unlimited money - don't! Tell granddaughter to go to cheaper school. In the end fancy private schools mean little. Student loans are a lifetime commitment. I believe that expectations should be set early especially in retirement.

 

[oscalulo]

Loan forgiveness is incredibly difficult to navigate, but if you thread the needle exactly correctly, it does exist. That said, one of the reason people think it's a joke right now is all of the rules surrounding it that they do not educate you about until you go to apply for forgiveness and find out you were never in the program like you thought you were. For example, to the poster above who cosigned a private loan and think it's going to be eligible for loan forgiveness, it's not. Private loans are not eligible. Also, make sure your daughter is on the right repayment plan for her specific loan forgiveness that she hopes to qualify for - there are several programs she may qualify for as a teacher and/or as a public servant, she needs to figure out exactly which one and then get on the right repayment plan for that plan. That's a huge reason people are getting denied - so much so that Congress appropriated extra money to help those people who were rightly getting denied per the program rules but arguably because they were misinformed. https://www.studentloanplanner.com/blog/ is a good place to start to get educated in the BEGINNING of your repayment journey and not after years have passed where you assumed you were eligible when in fact you may not have been.

 

[piccolopat]

I know that you are not asking for opinions, but I'll offer mine anyway. Your granddaughter needs to learn to live within her means now before she turns out like her parents who apparently never learned the lesson of being fiscally responsible. I would first sit her down and go over the numbers, what the results of her FAFSA were, whether she knows about and applied for grants, work/study, etc. I would make sure she understood how much it will cost her to pay off her loans and what the expected starting pay would be for the jobs she hoped to get after she graduated. I would help her look at other schools that might be a better fit for her financially. I would make sure she understood that for most jobs, employers don't care what school you went to or how much debt you took on there, only that you had a degree. I would go over how she could save money by doing her first two years at a community college and then transfer. I would show her how much money she could save by commuting to a close school rather than paying room and board. I would make sure that she understood that if I cosigned and she didn't pay, that I would have to and how that might impact my own financial health. I would only proceed with cosigning her loan if I was ready to say goodbye to that money forever.

 

[imokurok]

Simply put, i/we will gift funds when we feel it’s appropriate, but will not co-sign for anyone.

 

[OldShooter]

Simply put, i/we will gift funds when we feel it’s appropriate, but will not co-sign for anyone.

(OP here) I think that's where we will end up too. A default among family members has 100% downside potential. At least now we have a little better understanding of the federal and the private loans.

 

[isisdave]

And the earlier you co-sign, the more the risk. If you're thinking "well, he's only got $20k loan as a freshman, and I'm cosigning for half." First of all, you'll be asked again, and second, by the time he graduates (in five or more years), he'll have $100k or more in loans. My point is that the ability to pay the FIRST loan will have eroded over the academic. career.

So my unsolicited advice is (1) community college first two years; (2) state school after that; (3) gifts, from a 529 plan if possible, instead of loans.

 

[oscalulo]

A lot of people here are confidently making statements about student loans that are factually iffy. There's no such thing as private student loans backed by the government. There are federal student loans and private student loans (offered through your usual suspects like Chase, etc.). Sallie Mae is a servicer. The federal government does not service their own loans, so all federal loans are serviced through servicers (Sallie Mae/Navient, FedLoan, etc. are all private companies who service federal loans - some are non-profit servicers some are for-profit servicers - all are equally incompetent honestly). Loan servicers handle the loans and repayments on behalf of the federal government (they bid and win contracts from the federal government to do so), but the loans they handle aren't "private loans backed by the government" - that's not a thing.

Federal loans are eligible for all sorts of repayment plans (income based, etc.) as well as loan forgiveness (again, you have to really understand the rules - they're not changing the loan forgiveness rules on people like some people here are claiming - they can't do that, that would be contractually illegal, but yes, the government certainly has not made much effort to clarify the rules which are quite convoluted, but not impossible to understand. Something that is happening though is that loan servicers are screwing up the paperwork and telling people they're not eligible for forgiveness when they actually are, or telling people they are eligible when they're not, and then they find out later that they're not, so that also makes people feel like the rules are being changed on them when they're not, it's just the people handling your case are incompetent - if you educate yourself about the rules and stay on top of the servicer and escalate things up when needed, loan forgiveness does exist.)

Private loans are a bit like the wild west - each one is different and you have to be really careful about the terms since it's literally just like taking out a personal loan, there really aren't any additional protections for private student loans vs just a private loan you would take out to say, buy a boat. Whereas federal loans have to fall into certain categories that are governed by rules and regulations so you're more protected there. For instance, if the student dies, their federal loans go away and they can't come after family members for them. Also, loan forgiveness is an option for federal loans (they all go away after 20-25 years, and for those in public service 10 years, and there are other programs for dentists, nurses, doctors, teachers and a few other professions that have different rules but are all pretty great too. And the loan forgiveness for public service is not taxed either - so say you get $100k of federal loans forgiven, it just goes away, you don't have to pay tax on that $100k. But again, the caveat is what I said above about how difficult it is to get a servicer to actually handle your loans properly without you having to manage it on at least an annual basis - ideally a quarterly basis if you really want to stay on top of it).

Anyway, I love this forum (I've learned SO much about investing, financial security, etc.), but most people here are pretty far removed from the whole student loan process as it exists currently and so I would not take any advice on here without making sure it's backed up by talking to someone who knows how student loans work currently (the advice earlier about talking to the financial aid officer at the school before deciding anything is a good one). I'm in my mid-30s, 11 years out from grad school, student loans are something that I'm intimately familiar with navigating and that have been awesome for me in allowing me to achieve financial success even while having them because I've made them work for me, although I've probably lost years off of my life in aggravation when dealing with servicers and having to tell them how to do their jobs and stay super on top of errors they make to make sure they fix them - something that the average person just doesn't have the bandwidth or wherewithal to do. I also work adjacent to the consumer protection field so I also have an advantage there - which is all to say, navigating student loans is like a second part time job at times (literally HOURS on the phone a couple of times a year yelling at servicers) and while I firmly believe student loans are really fantastic financial tools when used the right way, all the news articles out there now about how they mostly ruin people's lives are not wrong because for your average person, it's pretty easy to fall into that trap either because it's super easy to be misinformed about them or because the servicers make mistakes due to no fault of your own and screw you.

 

[kwblack]

This probably won't be very helpful other than a data point: My step-daughter took out student loans working towards a BA and MS in Special Education (her ex encouraged her to borrow more than she needed but that's another story). Even with as much loan forgiveness as the lenders (Federal, I suppose) would give being she's a teacher in a rural non-wealthy area for not great pay, it only reduced the total owed by about a third and was a long process. Loan forgiveness doesn't wipe everything out, or it didn't in her case.

The GKs so far have taken college level classes their senior HS year for free, then community college/state university co-op nursing program. We just paid tuition costs for the eldest (I got a lot of FF miles from my credit card) and so far the next GK is working, co-op plan, and Pell grants.

We're in the "gift before co-signing" camp. I might consider it to help build good credit but it would be brief and limited.

 

[Caskem]

No, Just No.

No No No No No No No. In case I wasn't clear...No.

 

[Humbooster]

Well said Oscalulo, that is a great summary of the Student loan situation in the country. It mirrors my experience exactly when dealing with our kids loans. It was incredibly frustrating to get conflicting information every step of the way.

 

[gayl]

Oscalulo, thank you for writing something I can actually understand.

Personally I'm trying not to be frustrated with GS1. His field of choice is music performance which requires 135 semester units (+ minor in education). So yes. 5 yrs. He is between 4th & 5th yrs and accepted a 2 week gig in Argentina with a symphony. But that cut his teaching at an SF HS by 2 weeks. So far he owes 15k! Yes 15k on what was supposed to be a free ride. Sort of expected that and will pay off 11k the day he graduates. Now he's only getting 7k next year, college + housing is running 20k. So the plan was for him to teach all summer & bank that to offset scholarship that was just for 1st 4 yrs. That plus a pt job should do it.

But no. He's on a plane to Argentina


Adding: can I transfer that 11k to a charge card when he graduates? I have space. Would he still be able to deduct the interest on his taxes? Can I pick which ones to pay off 1st or do you have to pay an equal amount on all? 3 are subsidized / 2 are unsubsidized (4k). I never owed SL personally or for my 2 kids ..... but this is a GK

 

[ncbill]

And the earlier you co-sign, the more the risk. If you're thinking "well, he's only got $20k loan as a freshman, and I'm cosigning for half." First of all, you'll be asked again, and second, by the time he graduates (in five or more years), he'll have $100k or more in loans. My point is that the ability to pay the FIRST loan will have eroded over the academic. career.

So my unsolicited advice is (1) community college first two years; (2) state school after that; (3) gifts, from a 529 plan if possible, instead of loans.

And don't forget the education benefits the U.S. military offers...GI Bill post-enlistment, ROTC scholarships, even joining the National Guard in many states will pay tuition/fees at in-state public schools.