Co-signing a daughter's education loan
I am worried about co-signing for my daughter's
college loan. It will be in the $10,000 range just for this
first year. I am 53 and know this debt will affect my future
retirement. I have checked on loans that allow for co-signer
release after a time. Any suggestions would be much appreciated.
Your question has some implications for both the past and
future. The future concern for a first-year debt of $10,000
leads me to expect second, third and fourth-year loans totaling
$40,000. Your concern about your retirement indicates that
you expect to be paying at least a part of the $40,000 yourself,
based on past performance from the daughter.
I am sure that you have arrived at a loan amount
of $10,000 after researching every other possibility, but
just in case you did not, and for the benefit of my readers,
let's quickly go through the process.
First, take advantage of the financial
aid office at your daughter's school. They should be able
to walk you through every possible way to squeeze out an extra
nickel from federal loans, grants, work-study opportunities,
loans in the student's name only and other means before seeking
a private loan.
As you probably already know, for federal loans
or grants you must fill out a Free
Application for Federal Student Aid form and the College
Scholarship's Services Profile is required by many institutions
for private and institutional funds. What you and many readers
may not know is that if you do not qualify for need-based
funds the first year, you should apply again for the next
school year. Your circumstances may change or eligibility
requirements may change -- you never know -- and all it takes
is the time to fill out the form(s).
Once you have explored all other options, a
or alternative loan may be worth consideration. As you have
found out, students will probably not qualify for such a loan
without a co-signer unless they meet certain criteria:
1. two years of good credit history;
2. status of U.S. citizen or permanent resident for two
3. at least $18,000 in annual income with full employment
for two years.
Many undergraduate students are not going to
meet the above criteria.
As you state in your question and as I have
warned in other columns, you as the co-signer of a loan have
to be prepared to make the payments if the loan defaults.
In fact, I will share one of Bucci's maxims: "A co-signed
loan is a defaulted loan. You just don't know it yet!"
The corollary to this maxim is, "Any loan you make to
a relative is really a gift. You just don't know it yet!!"
However, as you mentioned, many alternative
loans have a co-signer release option available after 24 to
48 consecutive on-time payments.
What you have to decide, Kristin, is whether
you are willing to make that kind of sacrifice/gift for your
daughter to attend the school she has chosen.
My advice is to put pen to paper and find out
if you will be able to afford college loan payments and the
retirement that you have worked for and deserve. This is an
animal with a long tail, considering your daughter will likely
be in college four to five years at the minimum. If the answer
is no, then you and your daughter will need to have a serious
discussion about just what is involved with financing her
A number of non-financial options can be considered,
such as attending a community college for the first two years
or spending some time in the military to amass some college
money from Uncle Sam, or even working while in school part
If you do co-sign a loan, make sure you shop
around for the best deal and research that co-signer release
The Debt Adviser, Steve Bucci,
is the president of Consumer Credit Counseling Service of Southern
New England. Visit CCCS
for additional debt
advice or click
here to ask a debt question.
-- Posted: Aug. 20, 2004