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Cosigning a Loan
Fuzzywhale
Registered User regular
Registered User regular
Hey
My sister's had a bit of a rough time with her university education and is ending up taking an extra two years. From what she tells me, she does the usual filing of the FAFSA form every year, and gets a nice amount of aid. However, this isn't enough, so she has to take out many private loans. I guess she took a big knock to her credit because she forgot to pay some bills, so she needs someone to cosign on some current loan and if "Her credit hasn't been built up by next summer she'll need me to sign off on another one".
First, My for various reasons my father has horrendous credit, so he can't sign off on it.
No one else in my extended family will sign either, which sets off warning bells for me.
As I understand it, Cosigning on her loan basically says "If she goes broke I can pick up her debt". The what tries to be a loving brother says "I gotta help her out", but on the other hand, I cannot in fact pick up her debt, as I am a poor PhD Student, and have undergrad and MSc debt of my own.
Have I missed anything on cosigning? Is there anything else I should consider? I am financially unsavy. Please let me know if I need to fill in any details.
tl;dr My sister wants me to cosign on a loan, none of our relatives can/will do it. I will feel very bad if I say no.
My sister's had a bit of a rough time with her university education and is ending up taking an extra two years. From what she tells me, she does the usual filing of the FAFSA form every year, and gets a nice amount of aid. However, this isn't enough, so she has to take out many private loans. I guess she took a big knock to her credit because she forgot to pay some bills, so she needs someone to cosign on some current loan and if "Her credit hasn't been built up by next summer she'll need me to sign off on another one".
First, My for various reasons my father has horrendous credit, so he can't sign off on it.
No one else in my extended family will sign either, which sets off warning bells for me.
As I understand it, Cosigning on her loan basically says "If she goes broke I can pick up her debt". The what tries to be a loving brother says "I gotta help her out", but on the other hand, I cannot in fact pick up her debt, as I am a poor PhD Student, and have undergrad and MSc debt of my own.
Have I missed anything on cosigning? Is there anything else I should consider? I am financially unsavy. Please let me know if I need to fill in any details.
tl;dr My sister wants me to cosign on a loan, none of our relatives can/will do it. I will feel very bad if I say no.
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As a financial (mortgage) adviser, I'd only advocate cosigning for close family who you know will be able to pay, but cannot get the loan for credit reasons. If anything happens you'll also be held accountable for the loan, so if she can't pay for a few months your credit will take a hit as well as hers, which could create a situation where the signer has no ability to get a loan.
Honestly, it's never worth the risk. That said, if these are "Private" loans, I'd take it out in your name only, and ensure that she pays you each month. If you don't have the financial stability to support the loan on your own, you shouldn't get it. One emergency room visit or busted transmission and your credit will be screwed.
Unless you are very, very sure that you can afford to pay for it on your own without it becoming a financial hardship, I wouldn't co-sign the loan.
This is going to affect your liability in the future and show up as a loan on your credit too.
Just an idea, not sure how it'd pan out or even if she'd qualify for a consolidation or if that's even legal. Seems like a loophole that'd be possible.
It's a good assumption to make that once you're on a loan, it's for the duration. For example, the only way to remove a co-signer from a mortgage is to refinance (get a new loan.) Smaller loans may work differently, but in general signing your name is a damn serious act (something a lot of our currently delinquent mortgagors can't seem to understand.)
On top of this, do not cosign on a loan that you yourself cannot afford, in case the above mentioned falls through.
Basically, I wouldn't if I were you. You've said there's no way you can afford to pay it yourself, and that's tipoff #1 that you shouldn't put your signature to it unless you're really hurting to let her take you down with her.
I understand that past crap is past and I'm sure she's grown out of it all and has turned into an entirely responsible human being who just happens to be piling up debt after debt, but any and all of that aside if you shouldn't ever sign your name on an agreement you aren't reasonably sure that, unforeseen circumstances aside, you will be able to pay back when the terms are up. That means for you or for anybody else.
The idea may have worked 3 or 4 years ago.
Yeah, this really doesn't seem to be even remotely a good idea.
Can I ask more about student loans?
When I completed my undergrad, I had federal loans cover some of the bill, no strings attached grant money, and one private loan/my father paid the rest. All that I had to do was resubmit that FAFSA form every year and I was good.
What my sister appears to be doing is taking out a new private loan, every year. That's not common, is it? Also that just seems like a horrendously bad idea.
Absolutely. The loans should never had been made in the first place, and there need to be better systems of financial education to drill the absolute gravity of the contract. The blame for originating these loans lies with the brokers and mortgage companies who abused the public trust.
Doesn't change the fact that many of those same people refuse to understand the impact and mechanics of a multi-hundred-thousand dollar loan after post-purchase education. I'm not blaming the borrower of a predatory loan, I'm lamenting the tragedy for these families with the cool detachment necessary when you deal with fixing it for 50+ hours a week, which is what I do. This is for another thread-- a thread I don't need.
So uh, how much does she owe about now? She might want to consider transferring to a cheaper school at this point. Do all of those have different interest rates, and are they accruing interest while she's in school?
I don't know too much about the student loan biz myself, as I've only ever had them, but I have to say it strikes me as maybe not such a great idea.
edit: I see people are saying that's pretty normal, so that's cool. I think I didn't run into much of this because I always went to state schools.
I had wives say "please don't tell my husband about this debt. I will pay it on time, blah blah blah." Then they missed the payment and.... their husband is the cosigner so I can legally call him and tell him the deal. I guess that is sort of tangential to what you are asking though.
Based on what you said about how your sister "forgot" to make some payments on other loans.... don't touch this with a ten foot pole. Not making payments is a big deal. You could easily end up in a situation owing thousands of dollars RIGHT NOW (as in, payment due in full TODAY) as well as fucking up your credit.
Ayup. And honestly, cosigning might not even guarantee that the loan will go through. Is the OP not also in college, probably with debt of his own?
With the debt I racked up from college, I can't even get a $1000 credit card right now, much less be of use as a cosigner. Credit is still very hard to get for the common man, as a result of the economy. This is a pretty shitty time to be going through college. It sounds to me like the only way your sister is going to finance 2 years of education is if someone in the family is willing to secure the loan with some sort of collateral... and that is pretty dangerous as well.
we also talk about other random shit and clown upon each other
I think at least I will recommend she transfer to a less expensive school.
You can do 6 months off without making your school loans come due. 6 months and 1 day, and the bill will be in your mail box.
During that time she should work her ass off to help finance the rest of her education.
we also talk about other random shit and clown upon each other
This, and depending on how much she needs and how much you have (or can spare...frugal living for the win!) you can support her.
Also, sit down with her, review the situation. What is necessary, what can go, go over her day plan, can she free up time to have a job?
Oh yeah, if you do support her, make it a loan and make sure that she tries her best to pay back. Afterwards you can just tell her that it is okay, but people have to learn the value of money...and even for adults getting free money doesn't help to reinforce that notion.
I am somewhat fuzzy on the actual financial situation of the OP. I agree with you that we're past the point where people should know the value of money....doesn't mean that people have actually learned. What I am getting at is that the description of the sisters financial situation sounds rather fishy.
As for me, I'm a PhD student being funded in Scotland, and she's back home in new york going to school. I get enough money to live on fine by myself, but I can't support anyone else right now.
Edit: Oh Okay, I have to say I don't really know how much she owes. I don't know if I should really pry in to it, as the general consensus seems to be I shouldn't sign, and I won't be. I think I'll be suggesting she takes some time off and works full time/tries to get a place to live, and saves up to get back into school.
More edits: We're actually from Middle of nowhere upstate new york, so It's definitely not due to the high standard of living. I'd have to agree that there might be some mis- education with regards to money. When I went off to undergrad/she was still in high school, they ended up sharing some bills like mobile expenses and the like, and I feel like some of my dad's practices may have rubbed off on her
At any rate, co-signing a loan is almost always a bad idea. I can't even think of a reason off the top of my head why I would co-sign a loan, unless I didn't have the amount of money on hand to give to that person directly. In which case, I would think long and hard before signing anything.
Hell, if I felt absolutely obligated to "co-sign" something for someone, I'd just get the loan for myself. And sign it by myself. And then get all the money. Myself. And pay it out. Myself. Because then, if that person decides to fuck me over, the worse thing that happens is I that I have lost whatever I already paid out, and that I have to pay interest on the remainder of the loan. Hell, I'd probably even take the time to just negotiate with the lender and pay it all back at once at a lower rate.
Truth be told, the only time I would co-sign something is if I was married to the person. Which would make it kind of a moot point...
PS - I know a girl who made stupid financial decisions early in college, and had to move back home, work full-time and go to school at a local community college full-time because she had no support from her family at all (not even allowed to move back home). She has done both, and is now transferring back to a four-year institution. It sounds like your sister at least has more options, such as living at home and the like. Yeah, it sucks, but you know what? It's part of growing up. You make mistakes, you learn from them, and if you really want to move ahead you fix that shit and do what needs to get done.
maybe fishy isn't the exact word. However, Inquisitor77 nailed it. Where did the money go, why is she getting so little? Maybe it's just me, but I'd get suspicious if people have several sources funding them and still don't have enough....although NY is a very expensive city, which may explain some things.
Maybe it is just me, but I have found that 'trust no one, not even yourself' is more or less the best advice in any money lending situation. Moreover, hearing your sister has some credit problems, as well as your dad suggests to me that there might be an education problem when it comes to money management.
I did discover that as far as fafsa was concerned, she was still documented as a dependent student, and they were factoring in my father's income in her estimated aid
Depending on how old she is remember that if she declares herself independent and has health insurance through your father she'll lose it, and depending on how prone to sickness she is that could be a really bad move.
When I was 19 I took out a small car loan that my Dad had to co-sign. However, I've been building my credit ever since and haven't had any issues getting credit on my own since. It's a good way to start building a credit rating if you're just starting out and can't get approved.
But the OP's sister isn't starting out - she already has a bunch of loans - so the co-signing thing is dangerous.
My mother was on the poverty line and with the exception of a few pell grants when I started, I didn't get a dime until my last semester, and even then it was worth maybe 6 credit hours.
we also talk about other random shit and clown upon each other
Well I've suggested the things people suggested here, and it seems like she wants to figure things out on her own, so I guess that's that. At the least, thanks for the loan and fafsa info.