Co-signing on a student loan may feel like a short-term favor, but for many people, it becomes a long-term financial risk. According to higher education expert Mark Kantrowitz, more than 90% of private student loans require a co-signer, meaning two people are equally responsible for the debt.
“Private student loans often require a co-signer because the student loan borrower has a poor or no credit history,” Kantrowitz told CNBC (1). “They are an unproven entity.”
This obligation does not disappear until the loan is repaid and it does not matter who benefits from the loan.
Imagine Jessica, a 28-year-old who, when she was 22, agreed to co-sign on her friend’s private student loans. He was alone at the time and trying to help someone he trusted. His friend needed a co-signer to finish his degree and promised to stay up to date on payments. He also told Jessica that he would refinance the loan as soon as possible. For years everything seemed fine.
But Jessica recently learned that the loan was several months past due and that her friend had stopped paying and stopped responding to her messages. The lender began calling Jessica directly, warning her that they would soon report late payments to the credit bureaus.
Taking over her loan payments could undo Jessica’s years of work trying to get out of credit card debt, but defaulting could damage her credit. What can he do to stay financially healthy?
Jessica’s case illustrates the risk millions of Americans take, often without fully understanding the consequences. Private student loans are especially risky for co-signers because they lack many of the protections built into federal loans. There are often no income-based repayment plans and few forgiveness options. Even if co-signer release schedules are available, they are rarely granted and usually require the approval of the principal debtor (2).
“Lenders are generally hesitant to remove a co-signer,” Dean Kaplan, president of The Kaplan Group, told US News.
“If they release the customer and the borrower later defaults, the lender will face a greater financial loss than if they had not released the co-signer (2).”
The impact can be severe. An AARP study found that nearly half of borrowers age 50 and older who cosigned a private student loan ultimately made the payments themselves (3). In some cases, co-signers have faced aggressive collection agencies, lawsuits, wage garnishment, frozen bank accounts, or property liens for debts they did not personally use but for which they were still responsible.
And default is not always due to irresponsibility. Illness, disability, job loss or family emergencies can cause even well-intentioned borrowers to fall behind. In such a case, co-signers become liable for the debt.
In one case reported by CNBC, a private lender exempted a 53-year-old woman from repayment when she became disabled, but then transferred the entire balance to her elderly mother, who had co-signed years earlier and was living off limited Social Security payments (1). The daughter is now worried that the loan company will take her mother’s house.
When a loan is not paid by the due date, co-signers have little choice. You must either pay off your debt or take the hit to your credit. Depending on your state and the terms of the loan, you may be able to pay off the debt and then sue the original debtor in civil court. But the case has its own costs.
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Scenarios like this highlight why co-signing is about risk assessment rather than generosity. In general, most financial experts warn against co-signing. Keep in mind that student loan repayment often takes decades, and many things can change in that time. If you’re considering co-signing any type of loan, consider these factors:
Before co-signing, it’s worth considering whether you can comfortably afford the loan. If you can’t or it would cause undue hardship, don’t co-sign.
Some co-signers assume they will be alerted if the debtor falls behind. This is not always guaranteed. Setting expectations with the other borrower, such as providing notice of late payments or providing shared access to the loan account, can reduce unpleasant surprises.
Trust alone is not enough. Understanding the borrower’s income stability, job prospects, and overall financial situation can help you assess true risk. If they don’t feel comfortable being transparent, don’t sign.
Many borrowers promise to refinance and remove the co-signer later. In practice, refinancing requires strong credit and stable income, and this is not always possible. Additionally, lenders generally have wide leeway in deciding whether to offer refinancing.
The takeaway here is simple: co-signing means tying your financial future to someone else’s ability and willingness to repay their debt. This isn’t always about trust, as the debtor’s disability or death could leave you in a difficult situation. Avoid co-signing on loans unless you’re comfortable paying off the debt yourself.
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CNBC (1); US News (2); AARP (3)
This article provides information only and should not be construed as advice. It is provided without any warranty.
