You should make Parents aware of the pitfalls of co-signing for their child’s student loans

USA Today recently published information on a report conducted by Consumers Financial Protection Bureau that reviewed more than 3,100 complaints about student loans. Many parents co-sign their students loans as they don’t have the credit to get approved on their own or they can get a much lower interest rate when their parent co-signs. In the analysis that was done more than 90% of parents who tried to get their names taken off the loans even when payments were up to date were rejected.

In 2011, more than 90% of private student loans required a co-signer compared to 67% in 2008. Because a co-signer is equally responsible for the loan, signing on can put their ability to access other forms of credit at risk.

That’s partially why most lenders advertise the ability to release co-signers from their obligation if the borrower is paying the loan back on time and has good credit. But borrowers are rarely notified when they’re eligible to apply for a co-signer release, information on these provisions is difficult to find on lenders’ websites and the bulk of co-signer applications are rejected.

The CFPB analysis found that many lenders don’t include a specific credit score floor necessary for releasing a co-signer. The lack of these specifics “raises questions about whether lenders have set reasonable requirements for borrowers seeking to obtain this commonly-advertised benefit,” the report notes.

Consumer advocates advise student loan borrowers to use private loans only when they’ve exhausted all of their options for federal money. Government student loans offer borrowers a fixed interest rate regardless of their credit history, as well as a variety of safety nets and repayment options if a borrower falls on hard times. Here is a link to the article: Parents need to be aware of student loan pitfalls

Many of your students won’t have a choice but to take out a private loan to cover the portion of their tuition/fees/housing that scholarship, grants and other loans don’t cover. They and their parents should be made aware of the consequences of taking out those loans though.