I feel bad for cosigners, I really do. Most of the time, the co-signer is not the person actually enrolling in school. The cosigner is the student’s parent, spouse, boyfriend, girlfriend, cousin, or friend. The cosigner believes, genuinely, that she is helping the student go to school to get an education. All the cosigner is doing (says the conventional wisdom) is enabling the student to get that loan that will pay for tuition, so that the one they love can get ahead in life. And that loved one will, of course, get employed upon graduation and promises (promises!) to pay that loan back.
Here’s the basic rule for cosigners that many people just do not appreciate when they sign those super-easy-to-sign loan contracts: The cosigner is just as liable for the loan as the borrower. That’s worth repeating, so let me go ahead and say it again: The cosigner is just as liable for the loan as the borrower.
That means that if the student doesn’t pay the bill, you, the cosigner, have to. If the student doesn’t get that wonderful job after graduating and her loans are due and she can’t afford the payments, the lender will come after you. If she defaults on the loan, you default on the loan, too, and you’ll get to experience the joys of collection right along with the borrower. Most loans that have the option to cosign (or require it) are private loans, meaning you don’t get the benefits of federal loans (such as generous deferment and forbearance options and Income-Based Repayment). On the flip side, some loan contracts have provisions that will allow for adverse action against the borrower if the cosigner does something the lender doesn’t like–like file for bankruptcy, or die.
Everyone enters into a cosigning relationship with the best of intentions. But I have seen cosigned student loans destroy relationships, end marriages, and sever family ties more times than I care to count, simply because no one understood the consequences of cosigning when they took out the student loan. As with any situation, understand what you are doing before you agree to put your signature on some document. It may come back to bite you later, in a big, big way.