In a recent blog post, I discussed the impact cosigning student loans can have on your ability to retire or retire as early as you had planned. Unless you are Donald Trump, odds are good that helping your child or loved one pay down their student loans will delay your retirement for years, if not decades. Student loans, particularly private ones, are not cheap!
For many, though, the value of a (higher) education is priceless – or at least worth the high costs and interest rates associated with student loans. Unfortunately, not every student has the credit or ability to independently obtain a student loan for funding their education.
Enter: The Cosigner.
For those who need private student loans for tuition, lenders will almost always mandate that you have at least one cosigner on your loan agreement. Requiring a cosigner(s), or other individuals who have agreed to be personally liable for your loan obligation, lenders gain increased security or assurance(s) that they will be paid back for the debt one way or another, even if you cannot afford to pay it yourself. This is a major bonus for lenders, who will be reimbursed not only for your loan, but the service fees and interest charges associated with it.
Obviously, having a cosigner benefits you, as well. Namely, you can pursue your education. However, a cosigner may enable you to obtain a lower interest rate on your loan, depending on the credit score of your cosigner, and can even allow you to build-up your own credit.
On the other hand, having a cosigner on your loan comes with drawbacks. If you and your cosigner fail to make payments on the loan, both of your credit scores can plummet. In addition to the hits on your credit histories, failing to pay back the loan can cause extreme embarrassment when your cosigner walks away from the car dealership without that new car they wanted because they could not obtain financing. As you can see, having a cosigner could be the beginning of the end of even the closest relationships, family included. This point cannot be overstated.
Furthermore, if you and your cosigner continue to neglect the loan payments, both of you can be sued by the lender for repayment. If a Judgment is entered against the two of you, the lender may be able to garnish your wages, put a lien on your property and even garnish your bank accounts – all at the same time. For instance, 25% of your paycheck may be taken for years on end while your cosigner’s bank accounts are liquidated, until the loan has been repaid.
While consigning your loan may be the only way you can attain higher education, be aware of cosigner pitfalls and make sure both you and your cosigner know exactly what you are doing. You should both read over the terms of your loan agreement carefully, make sure both of you understand it and agree to it. Lastly, make sure that you pay down your loan timely. Failure to do so will negatively affect both you and your cosigner, sometimes at the expense of your relationship.
If you are a borrower or cosigner and are having issues paying back the student loans, or have any other debt problem, you should contact a qualified debtors’ rights attorney, like those at Fitzgerald Campbell, right away. Our attorneys have decades of experience handling all types of debt defense matters and we are here to help you!