Co-signing Loans with a Student

Posted by: Meredith K. | Dec 19,2007


Parents: be careful of co-signing with your students.  I recommend you read a post by Henry @ Married with Children about how to broach the subject of money with your kids.  If your kids are terrible at managing money, this could become a significant problem if you co-sign a credit card and/or student loan application.  

Most often this is the case, as a student won’t be able to secure either type of loan without a parent co-signing.  The student will have a limited credit history, if any, and a limited income, if any.  In most cases, it’s not even possible to secure a loan with a parental signature.  As I’ve written time and again on this blog, students are having increasing difficulty paying off their bills.  This difficulty is going to manifest on a parent’s credit report.  

As I’ve mentioned previously, students aren’t always being irresponsible by spending unwisely.  Due to high fees and high interest rate, students can run into problems even if they’re not overusing the card.  In addition, both student credit cards and student loans have a shortened grace period, so it is much easier to default.  

The result is that a parent’s credit rating can tank due to the poor activity of their children.  So what can you do?  First, have a talk with your kids and tell them that their late payments are affecting your credit rating as well.  Next, contact the lenders and see if you can renegotiate the terms of the loan.  If possible, remove yourself from the loan agreement.  This can be possible if the student is out of school and has a steady income.  

In addition, parents can set it up so that funds are sent automatically to those loan accounts.  The problem here is that it might encourage defaults by the student: he or she won’t feel as obligated to pay if the parent is willing to pay off the bill.  That may have to be a tradeoff if you don’t want your child’s activity to have a negative impact on your credit rating.  

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