by Katerina Nikolas

Created on: February 03, 2010

A college education is an extremely expensive business these days. Even when a student has found federal financing and scholarship money, there will probably be a shortfall on the funds needed to afford all the costs associated with school. This is when the student will most likely resort to a private student loan to make up the difference needed.

Unless the student is a mature student who has already worked and established their own sound credit history, it is most likely that a private loan will need to be endorsed by an adult who does have a proven credit history. The company extending the private loan has no knowledge of the borrower, there is no financial history on their part to analyse, so they have no way of assessing if the student will be a good risk. Not everyone is responsible when it comes to handling loans and the obligations involved in repaying one. At this point the co-signer is asked to step in.

What anyone in this situation needs to know is the full financial implications involved in co-signing a school loan. Simply put, the debt becomes yours as much as theirs. Although the student is the one benefiting from the loan you could well be the one who ends up repaying it. This is your legal obligation once you sign on the dotted line, if the borrower themself defaults on future payments.

As a co-signer the amount of the loan will show on your own credit file, limiting your own ability to assume future credit, as the loan will be considered one of your liabilities. If the student misses a payment, even by overlooking it, the missed payment will be registered on your credit history, just as it would if you missed one of your own credit card or loan payments. The student could also be derelict in payments and you may never know about it until you apply for credit yourself. Although the loan is legally yours as much as the borrowers, the lender is under no obligation to inform you if the loan is not being handled well.

However if the student misses payments and the lender is finding it difficult to get the borrower to co-operate with paying, then they will certainly contact you. You will be expected to make these payments, plus any late payment charges which have already been incurred. If the student either cannot or will not pay the instalments when due, you will be obliged to do so. Any collateral you put up against the loan will be at risk.

Student loans are usually for high amounts. Never endorse a loan if you are not fully understanding of all

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