When you are in some trouble, whom would you ask for help? Your family, of course. It is but natural for your parents to want to help you out and they would expect you to ask them. So, when you were asked to get a co-signer for your student loan, the first name that came to your mind was that of your parents. But little do they know that they will actually be placing themselves in the line of fire.
Signing on as a co-signer is not the same as wanting to help you out with some difficulty. It is a legally binding contract and makes the co-signer as much responsible for the loans as the borrower himself/herself. So, if the student is unable to pay off the loans, it is the responsibility of the co-signers to pay them off. If they are unable to then they would have to face the same consequences that any other loan defaulter would have to face. The fact that they never saw a buck off the loan that they co-signed for is not something that is going to let them off the hook.
When a student defaults on a private loan, it is the responsibility of the co-signers to clear the loans. 90% of bank-backed loans, as opposed to federal loans, require a co-signatory, preferably parents. In most cases, it is the parents or the grandparents who co-sign their student loans. But in the present economy clearing the enormous amount of debt becomes an impossibility for the co-signers as well because most of them are already retired and are living on their saved money.
The consequences of defaulted loans are enormous and when the co-signers are unable to pay the loans off, they become dangerous. The loans are counted as unpaid personal loans against the co-signer’s name and they will not be able to get any financial assistance in the future apart from the collection harassment that comes as a part of the defaulted loan deal.
It is, therefore, very important to think well before signing on the dotted line as the co-signers even if it is for your own children. The economic condition and the job market scenario are no secret. So, unless your ward has secured a job already there is no guarantee about when they will get a job that will let them pay off the debt. Therefore, when you co-sign your child’s educational loans keep in mind that you might end up paying off the loans yourself.
Being adequately educated about loans before applying for one is one of the surest ways of staying out of trouble when the repayment begins. So, colleges are taking steps to educate students about the amount of money that they should loan and what will happen if they are unable to pay off the loans.
The student loan condition has long gone out of hand having crossed the $1 trillion mark a year back and the federal government is trying to find a solution to the problem. It has now begun blacklisting colleges that have a high default rate. So the colleges and universities that are near the edge are making efforts in that direction as well.
Central Wyoming College is trying hard to lower the number of students who default on their loans. According to their statistics, more than 15% of the students who started paying their loans about 3 years back have gone into default already. So, they have formed a task force to keep a tab on the students who are very likely to default. Those students who are first-time borrowers are encouraged to join a class where they are told about the possible consequences.
It is for the students to take the smart way out and go for the repayment plans if they feel that they might not be able to pay off the loans themselves. It is not only to keep their credit record unblemished but also to protect their families from unnecessary harassment.