When children or relatives go off to college, it is often an exciting and expensive time. Some people may be approached during this period to co-sign on a student loan or on student loan refinancing. Since student debt is a common debt management issue across Connecticut and the United States, it is worth looking into the specific risks of this decision before choosing to do so.
Across the United States, student loan debt has reached over $1.48 trillion with the average student carrying a balance of almost $40,000. Interest rates range from about 2 percent to 12 percent, with federal student loans sitting between 5.05 and 7.6 percent for the 2018-19 school year. Some students will choose to refinance this debt after graduation for a lower interest rate, which often requires a co-signer.
Co-signing for a child may not be a good idea for those who themselves do not have good credit. Besides the risk of worsening an already bad situation, someone with a low credit score likely won’t make a big impact in a person’s interest rate. It is also important that co-signers have the means to pay off the loan if needed, as they are committing to do so should the loan default.
For some families, co-signing on a student loan is a risk worth taking to help a student with critical debt management. For others, it is too much of a risk. Those who are struggling with debt management issues in Connecticut and are considering bankruptcy may find it useful to connect with a lawyer who understands the laws around this subject.