…Cosigning a Student Loan is Parenting’s New Financial Hazard

(CBSMiami) — Are you trying to figure out how to pay for your child’s college tuition? If you’re thinking about co-signing on a student loan, you might want to think twice.

Saying no to your children can be very difficult, especially when it’s for something that you want them to have. But it would do many Americans some good to say no to their children when it comes to cosigning for student loans for their college education.

You might think that sounds cruel, but unless you are very careful when taking on new debt for your kid’s education, you could end up destroying your own financial livelihood. A growing number of moms, dads and even grandparents are getting saddled with a debt they will never be able to repay. In some cases, they end up having their wages or worse, their Social Security benefits garnished to cover the student loans their child or grandchild defaulted on.

There’s information that you should know before you sign on the dotted line.

The average graduate now leaves school owing $26,600, reports The Institute for College Access and Success. But many owe much more. Student loan debts of $100,000 or even more are not uncommon. A third of that debt is held by people who are 40 or older, and roughly $42 billion is held by people over the age of 60, according to the Federal Reserve Bank of New York. The fastest-growing group of borrowers is aged 35 to 49.

Now some of that group is older adults going back to school with hopes of improving their chances of finding work in this terrible economy, but most are parents and grandparents that have co-signed educational loans for their children or grandchildren.

Your child or grandchild may enter into college with a complete intent and desire that once they graduate college, they will be able to obtain their “dream” job and begin to repay the student loans.  You won’t even be bothered with the loans as they will certainly be able to make the payments.

Well, not so fast.  Of all those who have graduated college since 2006, only 51 percent have a full-time job, according to a Rutgers University study. And eleven percent are unemployed or not working at all.  Of the happy few graduates that were able to find work after graduation, many have taken jobs below their skill level. The study found that 43 percent of employed recent graduates said their jobs do not require a college degree.

You might have to get rid of the new sewing room…  With recent grads finding it hard to get work, the lack of steady (or any) income has an ever increasing number moving back home to live with their parents.

The conclusion from Census data crunched for The Atlantic by Pew economist Richard Fry, the author of a recent report on young adults and debt, 45 percent of graduates were living back home in 2011, that’s 45% higher than in 2001. This generation is earning the reputation as the “Boomerang Generation”

If you have your heart set on co-signing for your child’s student loan, then there are few important things you should know or do to protect yourself.

• First, before turning to private loans requiring a co-signer, make sure the student has exhausted the federal options, which don’t usually require co-signers.

  Many people don’t max out the government-backed loans they can get.

  Undergraduates often could qualify for larger Stafford loans, and there’s a separate program available for graduate students. Also you may want to consider taking out a Federal PLUS Loan rather than co-signing for a private loan.

• Repayment options for private loans are generally less flexible than those for federal loans.
• Co-signers are responsible for paying back the debt just as if they had received the money. If the student can’t pay the bill, the lender can go after the co-signer for the entire balance.
• Interest rates are low for private loans right now, but are often variable and could rise before a loan is paid off in 10 to 20 years.
• A co-signer faces the same challenges in trying to discharge student loans in bankruptcy as the primary borrower.
• Consider term life insurance on the student until you can be removed from the loan.

I would also suggest you consider the message you are sending your child.  That being “let’s roll the dice on your (and my) financial future,” by financing college when you know full well the employment rate of graduating college students.

Don’t you think a better lesson would be learned by seeking other alternatives to obtaining a college education?  Looking for grants, going to a Community College instead of a State school, working and going to school at night?  …Anything to keep your child from piling on debt.

…Debt so big that they will likely still be paying on when their kids are ready for college.

…Financial responsibility is the best lesson your kids could learn and you can teach them, no student loan required.