This Survey Shows a Shocking Number of Parents Don’t Understand Co-Signing

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Imagine this scenario: Your beloved child just got accepted by the school of their dreams, and now, they’re jumping through hoops to figure out how to pay for it.

“Mom, can you co-sign on this loan for me?” they ask.

You agree to do it, not only because you want your child to have a bright future, but also because you want your child to buy you a nice beachfront condo when they eventually strike it rich.  

But do you know the real impact your kind gesture can have? If repayment doesn’t go according to plan, you’re on the hook.

Student loan refinancing service LendEDU surveyed 500 parents who co-signed on a child’s private loan. The results are… not good.

Do People Really Not Know What Co-signing Means?

Nope, no clue.

About 90% of all private student loans have co-signers, according to LendEDU’s data.

You may remember applying for federal loans and listing the names and phone numbers of people who might know where you are if you poof on your loans. Those people were not your co-signers; they simply serve as references in case your federal loan repayment record starts to take on fugitive status.

Co-signing means that if the student fails to make loan repayments in a timely fashion, the person who also signed on the loan is 100% on the hook.

Thirty-three percent of the parents LendEDU surveyed said they didn’t really understand the financial risk they would take on by serving as a co-signer.

College Grads, You Are Being Downright Awful to Your Parents

Get a bunch of co-signing parents together, and the room suddenly feels a bit chilly.

Almost 57% of the parents LendEDU surveyed said they thought their credit score took a hit because they served as co-signer. More than 51% of respondents thought their children’s student debt was “putting their retirement in jeopardy.”

“With more than 90% of private student loans being cosigned, it is very possible that this generation of parents have or will have to put off retirement in order to mitigate the losses brought on by cosigning their children’s student loans,” LendEDU’s Mike Brown wrote.

Why so grim? Because more than 34% of the co-signing respondents’ kids had made late payments on their loans. Almost 67% of the parents surveyed said they helped their children make monthly payments on the loans they co-signed.

Yes, the parents serve as a backstop for a co-signed loan, but the line on this lifesaver is short.

It takes nine months of delinquent payments before you your federal student loan goes into default and to collections.

Private loans? Lenders consider them in default if you miss three months of payments. That means parents don’t have a long window to make sure they’re not on the hook for their child’s payments — or suffering the negative impact of a collection on their credit.

The Way Out of Co-signing

Parents and other co-signers can ask private lenders for a co-signer release to remove them from their kids’ loans.

But you can’t exactly sneak out unnoticed. After requesting a release, the borrower must submit detailed financial information to prove they’re creditworthy. The borrower also must have a decent repayment history.  

For parents of soon-to-be borrowers, there’s another option beyond co-signing for private loans. Some undergraduate students and their parents may be eligible for Direct PLUS Loans, which the Department of Education grants.

The parent is 100% responsible for repaying this loan from the get-go, and the student can’t take over the loan at any time. But this method could help parents stay in good graces while working with their children to determine how the new grad can contribute to their generous parent’s repayment plan.

Your Turn: Have you co-signed on a student loan? Do you have regrets, or was it a good experience?

Lisa Rowan is a writer and producer at The Penny Hoarder.