When a parent cosigns their child’s student loan, they become partially responsible for paying off that debt.
BOSTON (PRWEB) September 26, 2019
Because most students have little or no credit, it is hard for them to obtain a private loan. That’s why they usually need a cosigner. Parents who cosign a loan can help their child secure a loan and, in some cases, help them get a lower interest rate. While obtaining a private loan can be extremely helpful for college-bound students, cosigning them comes with risks that parents need to understand. To help, national nonprofit American Consumer Credit Counseling (ACCC) explains what consumers need to know before cosigning student loans.
“When a parent cosigns their child’s student loan, they become partially responsible for paying off that debt,” said Steve Trumble, President and CEO of American Consumer Credit Counseling. “Parents can put themselves at risk when they cosign because any late payments or delinquency by their child can directly affect their credit score. That’s why it’s so crucial to do research and understand every way you could be impacted before cosigning.”
According to Forbes, Florida is one of the top four states with the highest student loan debt – with 2.2 million borrowers and a balance of $72.8 billion. Although Florida has one of the highest student loan debt balances, the average student loan debt per person is one of the lowest at $24,041, compared to the national average of $29,800.
ACCC explains what to know before cosigning a student loan.
1. It may negatively affect a consumer’s credit score – It is important to note that a late or missed payment on a cosigned loan could hurt a consumer’s credit score. When parents cosign their child’s loan, they agree to potentially take a hit on their credit score for the pending debt.
2. Be prepared to pay – Parents need to make sure that they are financially stable enough to possibly step in and pay if their child misses some – or all – of a payment.
3. Talking with a financial professional could help – Consumers should speak with a professional to find out the impact on their finances if they have to step in and pay the loan.
4. Consumers’ loan requests will be affected – The child’s student loan will not only appear on their credit report, but it will appear on the parents’ who is cosigning as well. When they apply for their own loan, if they are buying a house, for example, the student loan will be something that lenders take into consideration.
5. It may change the dynamic between a parent and their child – When parents cosign for their child, it will naturally lead to tough conversations. Parents should make sure they can communicate with their child about key financial topics without allowing feelings to get in the way.
6. There may be other options – Cosigning is not the only way parents can help their child financially. There are alternatives, such as assisting them to build credit by developing a savings plan.
ACCC is a 501(c)3 organization that provides free credit counseling, bankruptcy counseling, and housing counseling to consumers nationwide in need of financial literacy education and money management. For more information, contact ACCC:
- For credit counseling and student loan counseling, call 800-769-3571
- For bankruptcy counseling, call 866-826-6924
- For housing counseling, call 866-826-7180
- Or visit us online at http://www.ConsumerCredit.com
About American Consumer Credit Counseling
American Consumer Credit Counseling (ACCC) is a nonprofit credit counseling 501(c)(3) organization dedicated to empowering consumers to achieve financial management through credit counseling, debt management, bankruptcy counseling, housing counseling, student loan counseling and financial education concerning debt solutions. To help consumers reach their goal of debt relief, ACCC provides a range of free consumer personal finance resources on a variety of topics including budgeting, credit and debt management, student loan assistance, youth and money, homeownership, identity theft, senior living, and retirement. Consumers can use ACCC’s worksheets, videos, calculators, and blog articles to make the best possible decisions regarding their financial future. ACCC holds an A+ rating with the Better Business Bureau and is a member of the National Foundation for Credit Counseling® (NFCC®). For more information or to access free financial education resources, log on to ConsumerCredit.com or visit http://www.consumercredit.com/financial-education.aspx