Last summer Steve Mason, a senior pastor at Oasis Church in Redlands, California, gained national attention after inheriting his deceased daughter's student loan debt. Mr. Mason's daughter Lisa died suddenly of liver failure shortly after graduating nursing school, leaving him liable for the $200,000 in student loans he had cosigned to finance her education. The Mason family exhausted all of its options, including depletion of both Steven and his wife Darnelle's retirement funds, and loan forbearance relief. Rising levels of student loan debt weigh heavily on Millennials and parents alike, as many parents find themselves liable for their child's student loans.
Steve Mason's tragic story may be an extreme case, but he is not alone. Millions of people are legally obligated to have a portion of their wages diverted to paying down student debt. Borrowers and their parents seemingly have nowhere to turn when they are unable to repay the student loans they are liable for. Unlike most forms of consumer debt, student loans cannot easily be discharged through bankruptcy.
While there are risks involved in co-signing your child's student loans, there are a number of benefits for the borrower. Co-signing can increase your child's chance of approval, and can help them qualify for a better interest rate. In order to help minimize the risks involved, we've compiled a few tips to consider before co-signing your child's student loans:
If you have never cosigned a student loan before:
- Stay involved at every step: Go through the loan application processes with your child and make sure you both understand the terms and benefits offered by various lenders before co-signing. Keep copies of all loan documents and have a clear understanding of your responsibilities as a co-signer from the start.
If are currently a co-signer looking for some relief:
- Refinance while interest rates are low: If you have already cosigned student loans for your child, talk to them about refinancing to a better interest rate. Make sure you shop around for refinancing offers. Credible takes the stress out of this process by allowing borrowers to receive refinancing offers from multiple lenders, by filling out just one form. And because Credible is not a lender, you can ensure that you are getting an independent and transparent understanding of your options. The average borrower who refinance through Credible saves more than $11,000 over the life of the loan. Refinancing can also give your child options to adjust their repayment plan.
Though your child's pursuit of higher education can leave you financially exposed as a parent, there are many ways to weather the storm. Work with your child now to find a repayment plan that works best for both them as the borrower and you as the co-signer, in the event you wind up financially responsible.