You’ve been asked by a family member, albeit your child, a sibling, or a cousin, to cosign their student loan. Cosigning is a process where you agree to pay the student loans off in the event the primary borrower is unable to. However, it also allows the student in question to be accepted into their degree program.
But your current financial situation might not be in the best condition right now. Before you can cosign, you’ll need to get your finances in order. In this article, we’ll be going over how you can keep your finances in check before cosigning on your family member’s student loans.
Be Certain About Your Decision
Choosing to cosign is something you cannot take lightly. You need to be certain about your choice even if it’s for family. If you’re 100 percent sure, then it’s important to understand that you don’t have to go through a typical lender for a student loan.
Though it’s somewhat uncommon, you can cosign with a private lender. If this is your first time cosigning, you need to know how big of a responsibility it is as well as what rights you’re entitled to. As it is a legally binding contract, you’re entitled to all the student loan cosigner rights and responsibilities. Make sure to consult with the lender for more information.
Pay Off Your Debt
Now that you know what cosigning is and how you can go about it, let’s finally get into what you can do to get your finances in order. The first thing you should always do is to pay off any debt you currently owe. If you have too much outstanding debt, it can impact your credibility as a cosigner.
Too much outstanding debt can lower your score, which can lead to you and the primary borrower being denied. Any credit cards and personal loan you have should always be paid off whenever you can. You must pay them off when the deadline hits or else you’re going to be dealing with some very high interest rates.
Make a Contingency Plan to Protect Yourself
Although this is rare, you never really know what can happen with this student loan. Your own credit is quite literally in someone else’s hands, so what they do will reflect on you. That said, you need to have a contingency plan in place in case something goes wrong. First, set aside enough money to make a few payments just in case. Often, cosigners always must make at least two to three payments because the primary borrower was unable to.
Second, make sure to always monitor if the loan is being paid. You can ask the borrower or the lender for a statement. Lastly, you can ask the primary borrower to get cosigner release. Cosigner release is simply when the cosigner is absolved from all responsibilities regarding the loan. It’ll be entirely in their possession. There are requirements that need to be met, like the borrower proving they can tackle the debt payments without your aid.
