Does anyone know about co-signing student loans?

[ny biker]

I'm trying to understand what happens when you co-sign a SALLIE MAE student loan for a college student, over the life of the loan.

I know you have to provide information on the application, and you are responsible for paying the loan if the student cannot make payments. I'm trying to understand the logistics. For example, does the co-signer receive copies of all statements and other correspondence from SALLIE MAE about the loan?

Also, how does it show up on your credit report? Is it just listed like any loan that you are responsible for, or is there an indication that it is a co-sign situation, in case that somehow matters in your credit score?

I called SALLIE MAE and was transferred to 8 different people and all they can do is read me stuff that on their website. No one seems to know how it actually works.

I'm just trying to understand the ramifications over the long term.

Thanks very much.

[Irulan]

It will show on your credit report as a loan.
On ours, it didn't give any indication of us as co-signers, just that it is there as a loan liability.

[Trek420]

Not a financial planer, don't play one on TV, can't even balance my own checkbook but ... it might reduce your FICO score as it will show you have a higher ratio of debt to income.

I've found Sallie kinda clueless in dealing with them. Not surprised about the many transfers.

[bmccasland]

In general, the co-signer can be held responsible for the loan if the applicant defaults.

Thus parents (who in theory have more financial stability) would co-sign for the child/student.

[jessmarimba]

Are there any other options for you besides Sallie Mae? I don't find them trustworthy at all.

[withm]

Well this may sound harsh, and I don't know the specific circumstances about your request, so just consider this food for thought.

Suze Orman says no, don't co-sign any loans that you are not prepared to pay off yourself.

Student loans are not dischargeable in a bankruptcy. They never go away, and the interest keeps accruing. Students are taking out tens of thousands, if not more in student loans. Students attending ivy league colleges might end up with $300,000 in student loans, and no job. That's like a mortgage. Think very carefully before you co-sign any student loans.

If a bank won't give credit to someone without a co-signer, do you really want to grant credit to that same person, and then run the risk of having to pay it off yourself?

If the loan amount is just a few thousand for your own child, that may be a different story, and much easier if you get stuck for the repayment. But don't lose sight of the fact that you may still have to pay it off.

[indysteel]

It is possible to be released from a Sallie Mae loan as a cosignor once the student has graduated and successfully made a certain number of timely payments (12-24 consecutive months depending on the loan).

It is true that student loans are almost impossible to discharge in bankruptcy, although there is some movement afoot to change this. I wouldn't count on it though. I, personally, would only co-sign my own child's loan and only then if we had a clear understanding about cost containment and reasonable hopes for post-graduate employment. And I certainly wouldn't cosign if I fundamentally couldn't afford to absorb some or all of the liability.

[OakLeaf]

My parents had to cosign my law school loans. As soon as I graduated I refinanced in my own name through Sallie Mae.

I'd be more concerned whether the school is legit. For-profit colleges are a huge scandal these days. I'm assuming you know the risks and the character of the person you're considering co-signing for, but I'd say the biggest homework you need to do is on the school and their chosen field of study.

[indysteel]

I'd also want to know the approximate amount in student loans they anticipate needing for the totality of their education. In other words, how manageable will their total indebtedness be upon graduation? It's one thing to cosign a $5k loan if the student's total debt will be $10k. It's another thing when the total debt will be (as it often is these days) $50k or more.

[lovelygamer]

Is the student not able to get federal loans by themselves? and yes, they aren't able to be written off in bankruptcy. Co-signers are liable, just like with a car lien.

[goldfinch]

Ask to read the loan paperwork to find out whether you will get notices and other info from Sallie Mae. I have heard of cosigners and guarantors of loans not finding out there was a problem until there was a demand that they pay off the entire loan in full immediately. I do not know what Sallie Mae's paper work looks like but you will want to know if the loan goes in default and you will want to have the opportunity to cure the default by catching up on past due payments and continuing with monthly payments.

[SueDavis]

Check out your local bank. We have a daughter in school and just get her private student loans. Usually after 3 to 4 years of steady repayment history the cosigner is forgiven and it's all the students responsibility.

[indysteel]

Is the student not able to get federal loans by themselves? and yes, they aren't able to be written off in bankruptcy. Co-signers are liable, just like with a car lien.

A student should try to exhaust federal student loans and all other aid before private loans are considered. There are a lot of resources on the Web explaining the pros and cons of federal versus private loans. I'd encourage you (and the student you're considering co-signing for) to read up on it before securing a private loan.

Some of the cons of private loans: Sometimes, although not always, repayment begins immediately rather than after the student graduates. The loan often survives the student's death or disabilty. Interest is often not subsidized, meaning that even if the loan repayment is deferred until graduation, interest will accrue from the time the loan is issued. Also look out for higher interest rates, prepayment penalities and other harsher terms.

[colorisnt]

When I took out a private student loan back in 2006, it was really easy with a good credit score to get a better rate and terms than with a federal loan. My Dad is a banker and that's why we went that route for "flow" money that we could use for the next four years. I barely took out any federal loans in college, but definitely have needed them in grad school. I looked to go the private route again before coming here and no one was lending with reasonable terms so I gav up. The loan that I have privately is half way paid off and I am very pleased with what it has done for me. It was only for $5000.00. My Dad cosigned knowing that he would have to pay it if I couldn't but trusting that I could. 5 grand is not a lot considering what many people I know owe.

I would NOT cosign unless I knew for a fact I COULD pay it back myself. At some point, you WILL be let off the hook if payments are made consecutively in a timely manner, as said above. But once more, if things don't go well and a kid doesn't have a job, you are in trouble if you can't pay it back - just like any other loan you take out. If the payments aren't made it will hurt your credit score. My Dad is on my private loan still because it is HELPING his credit score. My mother is still cosigned on my car loan despite her ability to be released because my payments are improving her FICO score. The loan has also helped build my credit - another reason we opted to go the immediate repayment way. So there are a lot of pros and cons here, but you have to know you can pay that loan back if you need to.

[beccaB]

NY Biker, can you get the Parent Plus loan? My first kid wasn't offered this option and we got a private loan in her name to cover the extra that the fafsa didn't get for us. Unfortulately the interest rate ended up being way more that we could figure on at first and we are going to be helping her pay this. Any loan you can get from the Fafsa in a fixed rate loan and usually has better terms. I didn't want the loan to be in mine and my husbands name and not in my child's name, but the interest rate is a whole lot better. we will have to work with this 2nd child that we are getting the parent plus loan for, to have him help pay it back since it is saving him money in the long run.