Parents Stuck Paying For Their Kids` Student Loans
Bob Stinson at his home in Michigan City, Miss., says he keeps receiving letters demanding past payments on a student loan he co-signed for his daughter, Tiffany. who temporarily had to stop making $1,200-a-month payments in order to help her mom while she recovered from surgery.
Photo Credit: WSJ
A few days ago I read in the Wall Street Journal about parents and grandparents who are now facing bankruptcy because they are now on the hook for student loans they cosigned which their children and grandchildren cannot repay:
WSJ, 29 Oct 2012, Soured Student Loans Bankrupt Parents, Grandparents
Lenders who extended $132,000 in student loans to Kristina Pietras before she dropped out of the University of Toledo knew she couldn’t afford to pay them back.
But they convinced a bankruptcy judge that her parents could.
That’s how Pietras’s parents, who co-signed on the loans, got stuck paying off their daughter’s massive student-loan debt, obligations they couldn’t even shake after filing for bankruptcy protection.
Those parents could have saved themselves a big headache had they only read my article: Never Cosign a Loan (even for children or grandchildren):
unless you are a buying a home or car with your spouse, do not cosign any loan. That is, if a relative, any relative, even your parents, siblings, or children come to you asking that you cosign a loan for something that will not be a shared asset, the answer must be 'No.'
Now some of my readers may feel that it's worth lending money to their children to attend college and I'm fine with that as long as you have the money in the bank to lend to them; if you do not, then do not cosign - you are only looking at a big disappointment; the majority of college graduates are not going to find work and the few who do will not be able to pay off the loans. In the past few years less than one in five college graduates have a job, see my article Poor College Graduates Do Not Get Jobs.
The problem is that too many people are going to college, driving up costs, see my article We Should not Help the Poor go to College.
So my advice is only lend if you have the money to throw away, never cosign, and try to delay your kid's college education until after they go out and get a job, any job so they can sock away as much of their own money toward their education as they can. Along the way they may also find out what career they really want.
Before you do anything read this report prepared for the National Association of Consumer Bankruptcy Attorneys regarding the Debt Bomb that you will be holding if you lend money for college: PDF.