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Q: My son is taking out a student loan this summer before he starts at university in the fall. Should I cosign this loan for him since the bank recommends it?
A: Probably not. Most financial experts agree that cosigning is rarely a good idea.
When you cosign a loan for someone, you are left responsible for that loan if the person can’t pay.
If your child ends up in a rough spot and can no longer make payments, the bank that gave your child the loan will now come after you…and if you can’t take over the payments, this will hurt your credit score.
Usually when a bank requires a cosigner, this is because the person is likely to default. Even if you think your son or daughter is responsible, responsible people lose their jobs too.
If the bank, with expert analysts, isn’t willing to take on this risk, why should you? Unless you can afford—and are willing—to take over payments if your child can no longer pay, you shouldn’t cosign.
If you’re like most people, you probably can’t afford to take on the extra cost each month of paying someone else’s student loan. In this case, cosigning is a bad idea.
You don’t need harassing phone calls from debt collectors or negative marks on your credit score, especially if you want to apply for a mortgage or a new credit card anytime soon.
What you can do is help your child figure out a way to finance his (or her) education. See if you know someone who’s hiring. Offer to add him as an authorized user on your credit card if you have good credit, which will help increase his credit score (only do this if you know your child wouldn’t use your card without permission). Help him look for scholarships, and encourage him to apply for a federal student loan, which does not require a cosigner.
You can even help him out financially now and then, but don’t cosign if you can’t afford it.