MIAMI (CBSMiami) — Are you trying to figure out how to pay for your child’s college tuition? If you’re thinking about co-signing on a student loan, there’s information that you should know before you sign on the dotted line.
The average interest rate at graduation has increased and the unemployment rate is high. The amount of debt increasing each year makes it even more difficult for students to be able to afford their student loans.
When the payments, interest and tight due dates on his son’s student loan became too much for the recent college grad, Steve was forced to take over payments.
He had cosigned and didn’t want it to go into default, tanking both their credit ratings.
“I had to rethink my whole financial situation whether I could retire will I have to work more? It, it kept me up at nights,” said Steve.
A whopping two-thirds of undergrads now graduate with student loan debt, totaling $1 trillion waiting to be paid back. For the first time ever the student loan default rate now exceeds credit card delinquency rate.
“Unemployment is high, average interest rate at graduation has increased. The amount of debt each year increases, making it much more difficult for students to be able to afford their student loans,” according to Mark Kantrowitz, of FinAid.org.
Nowadays if loans are private, more often than not there’s more than one signature on the bottom.
“More than 90 percent of new borrowers have a cosigner on their student loan, that’s up from less than half before the credit crisis,” said Kantrowitz.
Experts warn it’s a recipe for disaster for students and parents.
“Parents are basing their decision to cosign upon the traditional view that when you went to college your earning power was exponentially greater than if you didn’t go to college, and that rationale no longer holds,” according to attorney Ann Margaret Carrozza.
So what options do you have if your child defaults and you cosigned? Carrozza suggests you contact the lender immediately and ask for an interest rate adjustment deferment. This gives you a temporary reprieve from the payments where the interest does not accumulate or forbearance where the payments are temporarily suspended but the interest still accumulates. No matter what, a default can put a lot of stress on a family.
“When a student defaults and a parent is called back from retirement to go back to work to make these payments it’s certainly not a good chapter in the parent child relationship,” said Carrozza.
Steve said he didn’t think cosigning on the college loan would have this result, but he has no regret.
“If I didn’t do it and he didn’t pursue it I’d feel guilty maybe that he didn’t get the education he wanted or deserved,” said Steve.
Experts say families should be sure they’ve exhausted all federal loan possibilities before taking out a private student loan. It’s usually difficult to get student loans dismissed in bankruptcy court.