How and Why Being a Cosigner Helps Your Loved One Graduate From College
Nothing says more about your love and support than being a co-signer
If you've been asked to be a co-signer on a private loan by your child or loved one, this is an important decision. As a co-signer, you are agreeing to repay the loan only if your student borrower fails to make payments.
A private education loan must be in the name of the student, not the parent or other adult. As a result, asking you to be a co-signer is also an emotional time for both of you as the student seeks his or her independence. With you as a co-signer on the private student loan, you can help your loved one realize their dream of obtaining a college education. Along with your oversight and support you are also helping them make the transition to adulthood in a responsible way by opening the door for them to establish a good credit history.
Benefits of Being a Cosigner, When Done Properly
You are released from being a Co-signer after a specified number of consecutive on-time payments — the obligation is not forever! If the student's loan includes a "cosigner release" provision, as long as your child makes the specified number of consecutive, on-time payments (ranging between 36 4o 48 months) and has a positive credit record that meets lender requirements, you can be released from your co-signer responsibilities; i.e., your name comes off the loan. An added benefit of this release is that, by the time the release is in place, your child will have gone a long way to establish her own excellent credit record!(Availability and other restrictions may apply.)
As long as your child pays back the loan on a timely basis, you do not have to pay out any money at all Your role as co-signer is as a back-up payor in case your child (the borrower) does not make on-time loan payments. As long as those monthly payments are made, you don't pay out a cent.
Co-signing is a way to support your child, even if you don't have the funds on hand to pay school-related lump-sum bills
As much as you may want to help, you might not have the funds now to pay for your child's looming tuition, room and board and other fees that require huge upfront payment prior to the start of a new semester or school year. Co-signing a student loan can help you and your child afford these large bills, because repayment of the loan over time gives you some 'breathing room.' (Yes, interest does accrue, but that may be a small price to pay to get your child through school.)
No need to tap savings, especially retirement savings
If you're facing the dilemma of paying for college vs. saving for retirement, you're not alone. Most financial planners advise that you save for your retirement, because the number of years remaining between now and your retirement is growing short. By being a co-signer, you're not totally responsible for the debt, it's only when your child fails to make a payment that you'll need to step in. However, once you have enough savings, you'll have the flexibility to help the child with loan payments, if necessary.
Shared responsibility with your child, so they have a stake in doing well in school and being responsible about repayment
Your role as co-signer shows your loved one that you want him or her to succeed in school. It also sets expectations that the child will be responsible enough to make timely monthly payments on the loan, providing real-world experience in financial literacy that goes beyond textbooks and classes. What better life lesson could you give your child than that?
How OneSimpleLoan Can Help You Help Your Child
Have a written contract between you and the borrower, so that you can both discuss your respective rights and responsibilities, as well as establish consequences for not living up to the agreements made. Click here for a Contract template.
You will receive all copies of documents. Review them with th student borrower, so that both of you understand the terms and can comply with them.
If your loved one should miss a payment, you will be notified as well. That way, you can help your child stay on track, and keep your good credit pristine.
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