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Cosigning a Loan

FuzzywhaleFuzzywhale Registered User regular
edited May 2009 in Help / Advice Forum
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.

Fuzzywhale on
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    The Crowing OneThe Crowing One Registered User regular
    edited May 2009
    Cosigning on a loan is a very tricky, risky and dangerous proposition.

    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.

    The Crowing One on
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    ThanatosThanatos Registered User regular
    edited May 2009
    It's not so much that you "can" pick up her debt, it's that the debt is every bit as much yours as it is hers. The bank will come after you for it if she can't pay it. Not only that, but because it's student loan debt, you can't get rid of it via bankruptcy.

    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.

    Thanatos on
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    bowenbowen How you doin'? Registered User regular
    edited May 2009
    Don't do it unless you're willing to take the responsibility of scooping up her loans. The fact that she has previous bad debt is a good indicator you shouldn't do it. Are you willing to take the risk? If you are, and it works out, awesome you helped someone in need and probably helped your credit a bit.

    This is going to affect your liability in the future and show up as a loan on your credit too.

    bowen on
    not a doctor, not a lawyer, examples I use may not be fully researched so don't take out of context plz, don't @ me
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    HypatiaHypatia Registered User regular
    edited May 2009
    As people have said, the bank will come after you if she can't pay it; however, something else to keep in mind is that if she blows it off, forgets, or just plain decides not to pay it you'll also be screwed. How much do you really trust your sister? You said you can't afford to pay her loan for her, in this situation I'd look at it the same way that people look at "lending" a friend money. For you do to this you'd need to be okay with giving her $X amount and never seeing it again.

    Hypatia on
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    bowenbowen How you doin'? Registered User regular
    edited May 2009
    I'm speaking out of my ass here but you may be able to cosign the loan and then summarily, after being approved by the lendor, get all her loans consolidated together and removing you as the cosigner.

    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.

    bowen on
    not a doctor, not a lawyer, examples I use may not be fully researched so don't take out of context plz, don't @ me
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    ThanatosThanatos Registered User regular
    edited May 2009
    bowen wrote: »
    I'm speaking out of my ass here but you may be able to cosign the loan and then summarily, after being approved by the lendor, get all her loans consolidated together and removing you as the cosigner.

    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.
    If a bank isn't going to give you a small loan without a cosigner, they're not going to let you consolidate into a really big loan and remove a cosigner.

    Thanatos on
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    The Crowing OneThe Crowing One Registered User regular
    edited May 2009
    Thanatos wrote: »
    bowen wrote: »
    I'm speaking out of my ass here but you may be able to cosign the loan and then summarily, after being approved by the lendor, get all her loans consolidated together and removing you as the cosigner.

    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.
    If a bank isn't going to give you a small loan without a cosigner, they're not going to let you consolidate into a really big loan and remove a cosigner.

    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.)

    The Crowing One on
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    matt has a problemmatt has a problem Points to 'off' Points to 'on'Registered User regular
    edited May 2009
    Never loan money you can't afford to lose. Especially not to someone who, were they not to pay it, you'd have a problem with suing the pants off of. While it's not you personally loaning the money to her per se, if she stops paying, it's just as if you had, since you're out the money now. That, or you get to sue your own sister.

    matt has a problem on
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    ThanatosThanatos Registered User regular
    edited May 2009
    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.)
    Gee, I wonder if that has anything to do with them being told "oh, you can totally afford this, you should totally do it, it will be easy" by their mortgage advisers?

    Thanatos on
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    ceresceres When the last moon is cast over the last star of morning And the future has past without even a last desperate warningRegistered User, Moderator mod
    edited May 2009
    Do not cosign on a loan you are not 100% certain you trust the other person to pay back, or to be able to pay back.

    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.

    ceres on
    And it seems like all is dying, and would leave the world to mourn
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    bowenbowen How you doin'? Registered User regular
    edited May 2009
    What I've noticed is that if I didn't already have a loan it was prohibitively hard to get it from the financial institute doing the loaning, but if I did they were more happy to help me. They'll probably just require the cosigner to resign the consolidation though if the credit is that bad.

    The idea may have worked 3 or 4 years ago.

    bowen on
    not a doctor, not a lawyer, examples I use may not be fully researched so don't take out of context plz, don't @ me
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    ThanatosThanatos Registered User regular
    edited May 2009
    bowen wrote: »
    What I've noticed is that if I didn't already have a loan it was prohibitively hard to get it from the financial institute doing the loaning, but if I did they were more happy to help me. They'll probably just require the cosigner to resign the consolidation though if the credit is that bad.

    The idea may have worked 3 or 4 years ago.
    So, now, instead of being responsible for a small portion of the debt, the cosigner is responsible for all of it?

    Yeah, this really doesn't seem to be even remotely a good idea.

    Thanatos on
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    bowenbowen How you doin'? Registered User regular
    edited May 2009
    I know, it was a long shot originally, if they could get in without having the cosigner sign again, you see.

    bowen on
    not a doctor, not a lawyer, examples I use may not be fully researched so don't take out of context plz, don't @ me
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    FuzzywhaleFuzzywhale Registered User regular
    edited May 2009
    okay thanks, i really appreciate the advice.

    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.

    Fuzzywhale on
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    matt has a problemmatt has a problem Points to 'off' Points to 'on'Registered User regular
    edited May 2009
    If she can't get grant money, FAFSA isn't covering her full tuition amount, and she can't earn enough to make up what she needs, private loans are the only way.

    matt has a problem on
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    bowenbowen How you doin'? Registered User regular
    edited May 2009
    That seems like what I had to do to cover what the federal loans wouldn't, new loan each semester.

    bowen on
    not a doctor, not a lawyer, examples I use may not be fully researched so don't take out of context plz, don't @ me
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    FuzzywhaleFuzzywhale Registered User regular
    edited May 2009
    okay I was under the impression, for some reason, you could take out one large loan to handle the rest of the bill all at once.

    Fuzzywhale on
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    The Crowing OneThe Crowing One Registered User regular
    edited May 2009
    Thanatos wrote: »
    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.)
    Gee, I wonder if that has anything to do with them being told "oh, you can totally afford this, you should totally do it, it will be easy" by their mortgage advisers?

    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.

    The Crowing One on
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    ceresceres When the last moon is cast over the last star of morning And the future has past without even a last desperate warningRegistered User, Moderator mod
    edited May 2009
    A new private loan every year? Really?

    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.

    ceres on
    And it seems like all is dying, and would leave the world to mourn
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    ThanatosThanatos Registered User regular
    edited May 2009
    ceres wrote: »
    A new private loan every year? Really?

    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.
    These days, having to take out a private loan every year is pretty much par for the course. Education expenses are going up even faster than health care.

    Thanatos on
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    Al_watAl_wat Registered User regular
    edited May 2009
    When I worked in collections I called cosigners alllllll the fucken time. Your name is on it, it's yours.

    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.

    Al_wat on
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    FuzzywhaleFuzzywhale Registered User regular
    edited May 2009
    okay thanks, I won't be putting my name on this.

    Fuzzywhale on
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    JasconiusJasconius sword criminal mad onlineRegistered User regular
    edited May 2009
    Thanatos wrote: »
    ceres wrote: »
    A new private loan every year? Really?

    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.
    These days, having to take out a private loan every year is pretty much par for the course. Education expenses are going up even faster than health care.

    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.

    Jasconius on
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    FuzzywhaleFuzzywhale Registered User regular
    edited May 2009
    yeah does anyone know of any resources I could send her way, or is she out of luck?
    I think at least I will recommend she transfer to a less expensive school.

    Fuzzywhale on
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    JasconiusJasconius sword criminal mad onlineRegistered User regular
    edited May 2009
    Less expensive school, and/or taking a semester off.

    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.

    Jasconius on
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    TinuzTinuz Registered User regular
    edited May 2009
    Jasconius wrote: »
    Less expensive school, and/or taking a semester off.

    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.

    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.

    Tinuz on
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    ceresceres When the last moon is cast over the last star of morning And the future has past without even a last desperate warningRegistered User, Moderator mod
    edited May 2009
    Tinuz wrote: »
    Jasconius wrote: »
    Less expensive school, and/or taking a semester off.

    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.

    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.
    He cannot do this because he doesn't have the money to pay for her loan or probably support another person. We're pretty far past trying to teach the value of money.

    ceres on
    And it seems like all is dying, and would leave the world to mourn
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    TinuzTinuz Registered User regular
    edited May 2009
    ceres wrote: »
    Tinuz wrote: »
    Jasconius wrote: »
    Less expensive school, and/or taking a semester off.

    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.

    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.
    He cannot do this because he doesn't have the money to pay for her loan or probably support another person. We're pretty far past trying to teach the value of money.

    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.

    Tinuz on
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    FuzzywhaleFuzzywhale Registered User regular
    edited May 2009
    why does it sound fishy? I don't think I've left anything out.

    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 :(.

    Fuzzywhale on
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    Inquisitor77Inquisitor77 2 x Penny Arcade Fight Club Champion A fixed point in space and timeRegistered User regular
    edited May 2009
    I'm with a few others in this thread. I'm really, really curious to know exactly how much money she has in debt, and how she has managed to spend that amount of money.

    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.

    Inquisitor77 on
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    Al_watAl_wat Registered User regular
    edited May 2009
    Well, cosigning isn't always retarded. My dad cosigned on a line of credit for me, I've never missed payments on that.

    Al_wat on
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    TinuzTinuz Registered User regular
    edited May 2009
    Fuzzywhale wrote: »
    why does it sound fishy? I don't think I've left anything out.

    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.

    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.

    Tinuz on
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    FuzzywhaleFuzzywhale Registered User regular
    edited May 2009
    Well it looks like my aunt is going to help her out and cosign on this loan. Hope it goes through for her.

    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 :(. So I told her to go to her financial aid people and explain things, so hopefully she can get get independent student status for next year and get lots of nice federal loans.

    Fuzzywhale on
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    CrashtardCrashtard Registered User regular
    edited May 2009
    Fuzzywhale wrote: »
    Well it looks like my aunt is going to help her out and cosign on this loan. Hope it goes through for her.

    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 :(. So I told her to go to her financial aid people and explain things, so hopefully she can get get independent student status for next year and get lots of nice federal loans.

    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.

    Crashtard on
    I pinky swear that we will not screw you.

    Crashtard.jpg
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    Nova_CNova_C I have the need The need for speedRegistered User regular
    edited May 2009
    Al_wat wrote: »
    Well, cosigning isn't always retarded. My dad cosigned on a line of credit for me, I've never missed payments on that.

    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.

    Nova_C on
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    ThanatosThanatos Registered User regular
    edited May 2009
    Fuzzywhale wrote: »
    Well it looks like my aunt is going to help her out and cosign on this loan. Hope it goes through for her.

    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 :(. So I told her to go to her financial aid people and explain things, so hopefully she can get get independent student status for next year and get lots of nice federal loans.
    If you haven't been legally emancipated, doing that is next to impossible.

    Thanatos on
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    FuzzywhaleFuzzywhale Registered User regular
    edited May 2009
    Would that be difficult for her? She's 21.

    Fuzzywhale on
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    ThanatosThanatos Registered User regular
    edited May 2009
    Fuzzywhale wrote: »
    Would that be difficult for her? She's 21.
    Yes, very difficult.

    Thanatos on
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    JasconiusJasconius sword criminal mad onlineRegistered User regular
    edited May 2009
    I'm surprised she even gets aid at all if she's got her fathers income counting.

    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.

    Jasconius on
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    FuzzywhaleFuzzywhale Registered User regular
    edited May 2009
    okay, that's too bad.

    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.

    Fuzzywhale on
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