It is more complicated than at any other time in recent memory to afford to go to college. Tuition and cost of living expenses are on the rise, while there are fewer available grants and scholarships to help students make ends meet.
But a college degree is an absolute necessity in today’s workforce. Jobs have become more specialized than ever before, and maintaining a rigorous education standard is a requirement. With the recession also putting many highly-qualified professionals out of work, the recent graduate will face stiffer competition for fewer jobs as well.
Quality of a Degree
The quality of a degree is, therefore, even more important. Because of this and many other issues, over 90% of private loans required a cosignersigner in the last year. That’s up around 25% from the rates seen before the economic slowdown of 2008.
Students, more often than not, must turn to cosigners to afford their schooling. But if you’re approached by a friend or family member looking for a cosigner, you must think it through very carefully. Here are five things to consider before cosigning on a student loan.
First of all, has the student coming to you for help looked over all of the federal loan options available? Those federal loans will charge interest rates, and will always need to be paid back. But what they don’t require is a cosigner.
Interest on Student loans
And with President Obama’s return to the office, interest rates on federal student loans are expected to remain reasonable for the foreseeable future. Most undergraduates take some amount of federal loans but don’t ever reach the maximum. So make sure all options have been exhausted before going with a private loan.
Those cosigned private loans also have an inflexible payment schedule. Many students are finding repaying loans in a timely manner very difficult. On federal loans, there are always options in cases of economic distress. These include loan forbearance, deferrals, or adjustments in interest rates.
Most private loans will not offer any of these, or when they do, they will only allow for a couple of months of changes. They will also generally hit a fee in these cases. These issues are even more crucial when you consider the other reasons for caution.
You’ll be responsible
As a cosigner, you are also held responsible for 100% of the borrowed money. In the eyes of the lender, it is just as if you received the cash yourself. You wouldn’t be considering cosigning a loan if you didn’t trust the person asking, and believe in his or her future success.
But keep in mind that the slim job market could put this recent graduate in the same predicament as millions of others, underemployed or unemployed. And you’ll be left holding the bag.
Loans that require cosigners also generally feature variable interest rates, and you will have no control over which direction they go. Federal loans may be frozen at reasonable levels, but a private loan that requires repayment over as much as twenty years will probably go up, and not insignificantly.
How does your student loan debt make you feel?
Tell us in 3 emojis or less.
— Hillary Clinton (@HillaryClinton) August 12, 2015
As of now, the average interest rate is around 10%, and if the economy recovers, that could rise to as high as 16%. You will be on the hook for this interest, even without enjoying a single benefit of the loan.
Finally, cosigned student loans can haunt you even if you face your financial troubles. While you may be financially solvent right now, what if that was to change? If you ever find yourself facing bankruptcy, you may not be able to discharge the student loans.
It will take a bit more of a fight, and will probably cost you more in legal fees. So if you someday want to go back to school to earn a master’s in public administration or other advanced degrees, you may find yourself unable to pursue your goals.
This is a worst-case scenario, but that is why you must look at the situation over from all angles. Today’s choice could hurt your relationship with the student while damaging your financial outlook if things go wrong. And it only may not be worth that risk. Here’s an awesome article on Student Loan Forgiveness.