If you want to take a gamble, cosign a loan. Good luck.
I Got Help With A Cosign
My mother was gracious enough to cosign a student loan, so I could get extra funding for college. The good news is that I paid off the student loan my mother cosigned before I paid off the student loan solely in my name, primarily because of the psychology behind it. I can’t stand owing people I know money (banks are fine).
Even though my mom never made me feel it was urgent to pay off the loan (though she did mention it a few times), I created the urgency within myself. So, I paid off the student loan my mother cosigned in a few years after graduating.
The rest is history.
Am I A Hypocrite?
I’m asking because…If I had kids, I would not plan to cosign a loan for them
Maybe this seems selfish to some, but I don’t believe parents should pay for or fund their kids’ education — ever.
And here’s why:
Kids should invest in their own education, whether by applying for scholarships and grants, working, or obtaining loans.
Their investment in their education will help ensure they don’t take their education for granted.
If they want to blow the opportunity, they at least blow it on their dime and their time.
If they want to cherish the opportunity, they are more likely to value the experience 100 times more because they had to fund or creatively obtain funding for the whole ordeal.
I applied for scholarships and grants, obtained some loans, and worked my way through school. There was never a time when I wasn’t working. Even as I’ve went back to school, I’ve always funded it myself instead of seeking parental support.
Did I like school? It was okay. It wasn’t the worst experience, and I learned a lot. A lot was taken away from the experience, so I’m thankful I did it.
I always told myself, “You will finish school” and “You will get more than one degree while you’re at this game.”
I didn’t want to waste the opportunity, my time, or my financial resources.
If I’m there, I might as well make the most of it. So, the thought of quitting or sabotaging the opportunity in any way never once crossed my mind.
I wouldn’t take out a loan only to not reach my goal.
What would the point of that be?
Student loan debt is also one of the worst forms of debt after credit card and car loans.
On the other hand, I was surrounded by students who either quit, settled for poor grades, or relied on their parents’ funding. I remember those who dropped out in the first semester and were enrolled on their parents’ dime.
Nothing is productive about enabling your kids financially; if anything, you’re creating a financially dependent adult.
I still know people from college who cannot financially support themselves and rely on their parents’ help in their 20s and 30s.
One of the best gifts you can give your children is financial independence and the elimination of financial enablement.
Thankfully, my parents didn’t pay for my school; they only cosigned one loan, which I paid back in full.
I wouldn’t have it any other way because it forced me to evolve into a financially independent person who understands the value of money and where I invest my money.
School is not necessary in today’s world unless you need it for a specific vocation. If you’re going to school, don’t waste the opportunity or your financial resources.
Furthermore, don’t rely on anyone to fund your way through school; create your own way.
On The Flip Side
SOME kids’ parents pay for their school, and the kids end up being extremely grateful for the opportunity, graduate, and live productive lives.
Not all kids who have their educational opportunities funded by their parents end up as spoiled brats who ultimately sabotage their education.
However, I strongly encourage parents to invest in their retirement funds instead of funding their kids’ education. If you’re behind on retirement, you have no business funding your kid’s education over your retirement — unless you’re doing both.
Cosign the Loan if You’re Okay Getting Stuck with the Bill …. “No, thank you.”
A Person Who Needs a Cosign May Likely Default
I thankfully had good credit when my mother co-signed my loan; were not other types of federal loan available. Looking back, there were other private options I could have explored that did not require my parents’ assistance.
“According to the FTC, depending on the type of the loan, as many as three out of four primary borrowers default on their obligations, leaving the cosigner to pay. This is, after all, why they need a cosigner: they’re not good credit risks, either because they have too much debt already, or because they don’t pay their bills on time” (Megan McArdle).
I’ve had opportunities to cosign loans for people who appeared financially responsible and brought in strong income, and others who were not financially responsible in any capacity.
Whether a person is earning a high income or isn’t financially responsible doesn’t matter to me; what matters is WHY the person needs me to cosign the loan with them in the first place.
Why can’t they handle their financial business without me?
People who need a cosigner usually lack financial responsibility or have compromised financial histories, so if a person asks you to cosign a loan with them, think thrice.
Thankfully, I have never consigned a loan with anyone, and I am exceedingly grateful that I listened to my instincts on this multiple times because if I did, it would have cost me my peace of mind, time, and money.
Only cosign a loan with someone if you’re okay with getting stuck with the bill because it is VERY possible you might get stuck with the bill — even if they are financially responsible.
Sh*t happens.
Politely Decline And Don’t Judge Them
When someone seeks you to cosign a loan, they will likely be desperate.
First, it’s essential never to come off as judgmental of others’ financial situations.
Sh*t happens.
The goal is to recover and elevate your finances from any low point, but this needs to happen in a self-journey, not a paired journey.
Some people wanted to go into business together or buy a car with my name cosigned on it, and I consistently politely declined.
Never entangle yourself financially with someone who is struggling financially. You’re only setting yourself up for failure and stress.
But also, reconsider financially entangling yourself even with financially responsible parties. Financial obligations have a way of tying you with people you wish you weren’t tied to.
It might seem harsh to decline to help someone in need (depending on the relationship), but when you try to save people who struggle financially, you will likely have to save them repeatedly until they learn the lessons and ultimately get to a point where they don’t need you to cosign a loan with them.
Allow people the opportunity to save themselves and help them in other ways.
6 Ways to Help Others Financially W/O A Cosign
There are other ways to help others without financially enabling them:
- Encourage them to seek other loan options.
- Donate to them without the expectation of receiving anything back.
- Encourage them to increase their income to build a more significant downpayment.
- Encourage them to pay down their current debts before taking on new debts.
- Encourage them to consume personal finance material to improve their financial outcomes.
- If you have stellar credit, add someone to your credit card to help build their credit, but don’t give them access to the credit card.
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This article is for informational purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any significant financial decisions.