Warning to parents who cosign their child’s student loans

Warning to parents who cosign their child’s student loans

YOU want to help your children go to college and if you’re like most parents, you would do anything to help them get a good education.

At some point, you may be asked to co-sign your child student’s loans. That may be fine but my question is: Do you really understand what you are getting yourself into? Would you be willing to risk your retirement, your assets or at the very least your good credit standing if the loans are not repaid?

Your child can obtain federal student loans in his or her name alone but if the amount given is not enough, a lot of students end up having to borrow from private lenders. But since most young students don’t have an established credit history that would qualify them to obtain the loan in their name alone, lenders will often ask parents to cosign. Unfortunately, however, many parents don’t understand the consequences of cosigning. I know this because I see it a lot in my bankruptcy practice. Keep reading.

Here’s what you need to keep in mind before cosigning your child’s student loan: Cosigning makes you 100 percent responsible for the entire student loan, just as your child is.  In other words, you are taking on the legal responsibility as if you borrowed the money yourself. Thus, if your child is not able to pay the loan back for whatever reason, you’re on the hook and the lender will come after you.  Unfortunately, a lot of students graduate but end up not getting that dream job they want so oftentimes they find that they don’t have the income they were expecting in order to afford their student loans. Others quit before they even graduate and move on with their lives doing something else. So what happens to the student loans if this happens? That’s right. They don’t get paid. What happens to you then as the person who cosigned the loan?

Unlike federal student loans which offer more flexibility with regard to payments, private student loans are more difficult to handle if you default on the agreement. As a co-signor, you can get sued and if the lender obtains a judgment against you, they can garnish your paycheck, put a lien against your home, levy your bank account and do everything that the law allows them to do in order to collect what you owe them.

Don’t get me wrong. I understand that most people enter into a cosigning arrangement with the very best of intentions. But as a bankruptcy attorney, I’ve also seen how this can destroy marriages and family relationships especially when the person cosigning didn’t fully understand the legal consequences of what they were doing when they signed on the dotted line.  Remember that most of these loans also have long repayment terms of 5-12 years so until the last cent is paid off, you, as the cosignor, will remain liable to the end. Are you willing to assume that risk?

According to a recent article I read, about 57 percent of parents who cosign said that their credit score has been negatively affected.  Keep in mind that if your child is ever late on a payment, that late payment will be on your credit report as well. Any negative effect caused by late payments or delinquency can hurt your ability to qualify for home loans, refinancing, purchasing a car or obtaining any type of credit. So make sure that you understand all of this before making that commitment. If your child ends up not being able to pay, make sure that you can afford to make the payments yourself.

If you or your child is struggling with student loans, I can help. Currently, there is approximately $1.3 trillion dollars in outstanding student loans and I’m seeing a huge increase in the number of people calling my office for help with student loan debt. If you or someone you know is in this situation- or if you have other types of debts (credit cards, mortgage problems, IRS tax debt, etc.) for that matter, my office specializes in handling these types of cases. Please call my office at Toll-Free (866) 477-7772 to request a free consultation. I have offices in Glendale, Cerritos and Valencia.

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None of the information herein is intended to give legal advice for any specific situation.  Atty. Ray Bulaon has successfully helped thousands of clients in getting out of debt. For a free attorney evaluation of your situation, please call  Ray Bulaon Law Offices at  TOLL FREE 1 (866) 477-7772.

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