Speaking from a recent graduate’s point of view, getting approved for a loan at my age, on your own is a tough venture. Many companies offer lower interest rates and better loan terms with a co-signer.
Co-signing is when a parent, or individual, agrees to guarantee a debt on the student’s behalf. This meaning that they will be responsible for making the loan payments if the student does not. Oftentimes, this is the obvious answer. However, financial planners have cautioned millennials and their parents to think about the implications of co-signing first. Som Hanvanich, a financial planner in Kettering, Ohio, states, “Adult children should ask their parents to co-sign only if they absolutely need to, and parents should agree to co-sign only if they absolutely could afford to make the debt payments.”
There are a few things that should be discussed before becoming a co-signer. Before taking out a loan, the student should plan how the funds are going to be paid back. There should also be a plan in place if the student can’t make the loan payments. Most importantly, parents are cautioned to consider other alternatives before settling on becoming co-signer. It is important to keep in mind that once the student has a stable income, it is wise to remove the co-signer from the loan. Otherwise, there may be severe consequences for the individual. A report by the Consumer Financial Protection Bureau found that if the co-signer dies or files for bankruptcy, the student could be responsible for making the remaining balance of the loan payment in full. Co-signing can surely help a student in need, just be sure to consider other options and consequences before making the decision.