Student Loan Cosigning – Good or Bad?

I get asked about cosigning at least once a day and I am always happy to answer these questions, especially if it will stop people from cosigning loans for their kids, family and friends.  Today, I have another example as to why it is never wise to cosign.

The Social Security Administration is now withholding up to 15% of a recipient’s check if they are in default on a federally funded student loan.  So far this year this has effected 115,000 people  which is double the amount from last year, and the number just keeps getting higher.  You may be wondering why they would do this and you may begin to blame the government again, but it is not their fault.  What has happened is the consequence of student loans and the cosigning of student loans.

When a parent or grandparent cosigns on a student loan with their child or grandchild and that child or grandchild is unable to pay the loan, the loan goes into default.  At this time, the income of the signers of the loan will be garnished in order to repay the loan.  Over 17% of student loans are taken out by people 50 years and older.  We cannot keep mortgaging our futures for our kids and grandkids.  If we do not have the cash to give them, then we need to find a different solution for them.  Everyone believes that they are entitled to a college education, but we are not.  A college education is a privilege, not a right, and must be paid for in a wise fashion, just like everything else.

According to a recent report by the Consumer Financial Protection Bureau, 10% of new graduates have a student loan payment that is more than 25% of their income.  When you add this to a housing payment, either rent or a mortgage, over 50% of their income is spoken for in those two monthly payments alone.  As well, more than two million people ages 60 and over are still paying down their student debt.

Young adults are making very big financial decisions based on want and they are not looking at the consequences and the future of the decisions.  If a graduate has $40,000 in student loan debt when they graduate, their monthly payment will be around $460 for the next 10 years.  And the reality now is that many graduates are not finding jobs in their field as quickly as they would like to and making the money that they would hope to make.

When your child or grandchild comes to you wanting to go to college, don’t say no.  But always say no to cosigning for them financially.  Teach them to find a way to cash flow college, with your help if you can, by starting out at a community college or going to a local state school.  A college education is about knowledge, not about partying. Always make sure that what they want to do as a career requires a college degree.  Many people are going into debt to go to college when they can proceed with their passion without it.  Life is about following your dreams and passions with wisdom.