If you are considering cosigning a student loan, you are doing a great thing to help someone achieve their education goals. Often times, parents cosign student loans for their children, or you may be asked to cosign for another family member or close friend.
Although is it an amiable act, becoming a cosigner for any loan is a big undertaking that shouldn't be taken lightly. You may have a verbal agreement with student that they will be fully responsible for paying the loan and the student is likely to accept these terms at this stage in the game. But when it comes time for the loan to enter repayment, he or she may simply not have the means to pay. Regardless of your personal agreements, a student missing payments on the loan will have a direct impact on you. So before you sign on the dotted line, learn exactly what it means to be a student loan cosigner.
As a cosigner, you are just as obligated to pay the loan as the borrower.
The reason why the student is able to obtain the loan initially is most likely because of your good credit. A student is less likely to have any established credit history for a lender to go by. In the event that the student can't - or just doesn't - pay on the loan, you will have to be ready to step in and fulfill the obligations of the loan.
All too often cosigners don't seem to understand why creditors would be contacting them about a late or missed payment on a loan. Many people are unaware of the fact that if payments are missed or late, the lender will immediately reach out to the cosigner. As a student loan cosigner, you will be held liable for the amount due if the loan isn't paid. This means that you, just like the borrower, may be sent to a collections agency or even be sued if the loan defaults.
If the loan gets to this point - or is even just one payment past due - it will have the same effect on your credit as it does the borrower's credit.
Having a such a large amount of debt hanging over your head can be stressful. If the the loan adversely hits your credit, it could ruin your chances of obtaining credit for yourself in the future. If the loan gets settled for less than the full amount, you could face tax consequences for the remaining unpaid amount. Cosigning gone wrong can also ruin relationships among family and friends.
In the end, becoming a student loan cosigner is a good deed but serious business. Your name could mean the substantial difference between a high and low interest rate for a student.
The key is to read all the fine print first and to ensure that the student is responsible enough to see things through and pay back the loan. Compare student loan options here to lean more.