How to Understand the Obligations of Co-Signing for a Student Loan

Many times a lender will require the student to get a co-signer for their loan since most college students do not have a proven credit rating or sufficient income. When you are asked to co-sign a student loan, you need to be aware of the obligations that you are incurring by putting your name and credit rating on the dotted line.

Instructions

Difficulty: Moderate

1. Realize that if the student does not repay the student loan, the creditor will come after you for the money.
2. Know that liability for the loan will be included in your debt-to-income ratio, even if you never have to pay a nickel of the debt. Your debt-to-income ratio is what creditors use to determine your fitness to borrow money, so co-signing a student loan now reduces your ability to borrow money later.
3. In some states, the lender has the right to come after you for repayment if the loan goes into default without even trying to collect from the student.
4. If the creditor has attempted to collect from the student and failed, the late fees and collection costs are passed on to you, in addition to the original debt amount.
5. Federal law requires that you be given written notice of your obligations as a co-signer. Read these carefully and keep a copy handy.

Tips & Warnings

• Ask yourself if you can afford to assume the loan.
• Get copies of all documents and financial information for the co-signed loan.
• Request that you be notified at the first sign of trouble, not after dozens of failed collection attempts.
• Do not co-sign for a student loan if you are not prepared to assume the debt if the student defaults.

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