Advice please - cosigning a tuition loan?

[catland]

OK - here's the story. My niece is 19 and going to her second year of college - pre-law. She's a hard worker and is very motivated.

Unfortunately, some of her funding recently fell through. Her parents are struggling financially so there's no more from them. Their credit is also in shambles.

So now she has asked if I (well, me and my husband), would cosign a loan for her. She is just now starting to establish her own credit history but it is not in time for this loan. The loan doesn't come due until she is out of school so that would be six years down the road.

She's attending an expensive private school and living on campus (its about 90 minutes from her folks - she doesn't have a car). So she'll be amassing a fairly huge amount of debt by the time she finishes school. The loan she wants us to cosign on is just a portion of all the debt that she is collecting.

anyway - I would certainly appreciate any advice you can give me. Let me know if there are any other questions.

thanks so much.

[Logan]

Catland, I work in the financial industry (making small business loans), so I'm speaking from what I have learned in the last 20 years, lending money to people.

Don't co-sign unless you are prepared to take over those payments in the event that she either stopped paying or dropped out of school. It could happen, even if she completes school. Some of the student loan balances I see are well in excess of $100,000. I see the situation, often, where people were only trying to help and ended up ruining their own credit because they never thought they'd really have to make the payments. Make sure that if you do decide to help her, that you get the same monthly statements that she does to insure that you know the payments have been made. Many people get late payments reported on their credit reports and they never even knew the payments were late until the car/house/etc were about to be repossessed or a judgement was about to be filed.

Just my two cents worth......I don't think I could ask a family member to do it for me, nor would I agree to do it for another one, other than my own child.

Logan

[Ally Cat's Mommy]

Would you be able to "cap" the amount which you are liable for, or would it be open-ended until she finishes studying?

I have helped numerous family members over the years - some have repaid as promised and others have not. However I work on the principle that I don't lend money unless I can afford not to get it back, just in case the other party lets me down.

It IS a lot to ask, but I suppose it depends how close you are to your neice and also your own financial situation.

(I am the "baddie"with some of our family in South Africa, as one of my husband''s cousins got involved in some seriously bad stuff, and the family wanted us to put up $15 000 for a lawer to try get him off - we refused, and now some of the family are not talking to us. I guess what I am trying to say is that you need to bear in mind that money is an easy way of losing friends / family).

[catland]

Ally - its for part if this year's tuition only. It would not go up.

Of course nothing is ever simple - her mother (my sister) and I have a very strained relationship right now - due to money that she (my sister, not my niece) owes me.

There are so many what ifs... what if she changes her mind, drops out, gets pregnant, gets sick.... there are certainly things that could happen and yes, me and my husband would be stuck.

We haven't even really been that close over the years. I'd certainly like to get to know her better now that she is growing up and I can talk to her without her mom being around.

and no, we're not made of money. It would be a hardship if we were stuck with the bill.

My heart says sign the loan but my head says "wait - she'll get by somehow but you could end up regretting it for a very long time"

Logan - thank you too for the input. If anything, she has been very upfront - is willing to divulge all her finances, transcripts, whatever.

[micki76]

You also have to consider that you don't know where you'll be financially when it's time to repay the loan. What if you're in a financial pinch and can't make the payments if she defaults?

I agree with Logan, I'd never ask a family member to loan me the money, nor would I loan it to a family member. Money matters can often involve hurt feelings and pain, because different people have different ideas about handling money. Some people are very blase and others are very serious about money issues.

[catland]

Originally posted by micki76
You also have to consider that you don't know where you'll be financially when it's time to repay the loan. What if you're in a financial pinch and can't make the payments if she defaults?

Excellent point micki - thanks so much.

[lizzielou742]

What is she going to do next four years for loans? Just wondering, becuase her situation sounds similar to what mine was when I was her age. I just got out of school in December, and I know now, $60,000 later, how much of a pain school loans can be. But I also know that I would have had to stop after my freshman year if my mom hadn't co-signed on a loan for me that year. I also know that I failed to read the fine print, the part where it said my loan would accrue interest while I was in school. So now, here I am 4 years later, my grace period just ended, I just made my first payment, but I've already accrued almost $2,000 in interest on a $10,000 loan. (Plus I have other loans from other years to pay back.) I also failed to notice that the interest rate was much higher than the rest of my loans. My desperation to stay in school combined with my lack of experience in personal finance came back around to bite me in the you-know-where. Just my personal experience.

[jenfer]

I agree with Logan and Micki. I also work in financial instituion. I have seen lots of cases that the applicant got messy credit becuase they cosign loans.

Instead of cosign the loan, can you just lend her a big chunk of money. At least if she can't repay you, it will only be that amount, but not more (or your credit gone).

[Miss Meow]

Would you mind if you never saw the money again?

Would you mind having to repay the loan yourself and not get a thing in return for it?

Would you sacrifice your own house/lifestyle/retirement fund if you have to cover this loan?

If a stranger walked up to you and asked for a loan of this nature, what would you say?

Having a member of family request the money makes everything so much more complicated

You aren't that close to her, and her family has already made it clear they can't come to the rescue if something goes wrong. That's a big risk.

I would think very carefully about it if the loss of this money will impact on your family negatively.

There's a chance that your niece has learnt from her family's mistakes and will be diligent about repaying the loan. There's also a chance that she won't.

I don't mean to be negative, but I only just got out of a financial saga that split my mother's side of the family apart. My grandmother died two years ago and left a badly-written will and it really brought out the worst in some members of the family.

Good luck whatever you choose.

[Rachel]

The replies to this thread have been nothing short of excellent. Please do give much consideration to the points that have been raised. That said, there may be other ways you can assist her that are within a comfort zone. Could you send her a specific amount each month to help with her living expenses while in college?

[Rachel]

Originally posted by catland

She's attending an expensive private school and living on campus (its about 90 minutes from her folks - she doesn't have a car). So she'll be amassing a fairly huge amount of debt by the time she finishes school. The loan she wants us to cosign on is just a portion of all the debt that she is collecting.

I couldn't stop thinking about this thread. Maybe you could indicate your niece should consider transferring to a state university where her undergraduate expenses could be kept to a minimum and she would come out of school with much less debt.

Obviously this financially strapped family did not take the expense into consideration when they decided on which school their daugher should attend. It is not too early for this industrious young woman to learn one of life's lessons....we cannot always afford the things we want... and what we need and what we want may be two different things. Sometimes when people are indulged (because we love them) they come to believe they are entitled.

Yes, it would be a sacrifice for her to switch schools (and understandably a big sacrifice) but isn't that you she is asking you to make when she asks you to co-sign a loan with all the risks involved?

I'm sorry if I sound a bit harsh, but our family is dealing with a relative in her mid forties who still hasn't learned the lesson of living within her means, and as I think back to her college years, this feeling of entitlement was evident way back then.

[catland]

First of all, thank-you everyone who replied. I called her last night and told her that we wouldn't cosign the loan.

I looked over her paperwork that she gave me and YIKES - that place is really expensive! It does concern me that she could end up owing so much money by the time she gets out of school.

Besides, she is not my only niece - I have five other nieces and four other nephews - we can't very well be giving her money if we don't give them money.


Funny thing - about a half hour after the phone call, our tenant (we own a rental house) called and gave his 30 day's notice. It was almost like a sign - warning us that circumstances can change just that fast.


Once again, a big PetTalk THANK-YOU - you guys are the best!

[Tonya]

It sounds like you got some pretty good advice.

I kind of agree with my grandparent's principle about loaning money. They don't believe in it because it can cause problems. The way they looked at it is if they can't afford to pay my loan (if I default) then they shouldn't be giving me money in the first place. It's not worth the risk of losing a family member and/or being in debt.

For instance, I needed money for my first car, so I asked for a loan. They told no, that they don't loan money out. But if I agree in writing to get a job and go to college, they'll give the money to me as a gift.

Hopefully I made sense...I still have this dang migrane, can't think!

*edit* I'm sorry! I read your last post after I replied. I think that you made a good decision!

[micki76]

I hope she wasn't too upset, but I think you did the right thing.

And then your tenant gave notice!?! Freaky.