Cosigning for a student loan

July 1, 2006 7:40 PM

CreditFilter: Does co-signing for my student loans affect my parents' credit?

My parents are concerned that cosigning for my student loans (which, before I complete my undergraduate studies, will probably amount to approximately $50,000) will adversely affect their credit. If not their FICO credit score, at least show up as some sort of debt that they are responsible for that might hurt their chances at getting future loans.

Are there any credit or financial experts that might know the specifics regarding this? Many thanks!

posted by charmston to work & money (9 comments total)

There might be credit and financial experts that might know the specifics, but until they show up you just get my anecdote!

My mother cosigned a loan for me, and then later got a mortgage. As far as the mortgage company was concerned, that cosigned loan (which she had all but forgotten about, which is why she told me the story) was hers. It didn't pose any problems in her case, but they didn't treat it as some sort of special case.
posted by mendel at 8:49 PM on July 1, 2006

The answer's yes, although my only expertise is many years' worth of education debt.
posted by ikkyu2 at 8:57 PM on July 1, 2006

Co-signing will affect their credit rating because it will appear as a liability (not meaning that in a necessarily negative sense, just something that they are responsible for) just as if they took the loan for themselves. If for some reason you couldn't pay back the loan, obviously they would be liable for it. They should be theoretically able to repay this loan. And your repayment behavior will impact their credit rating.

Beyond that it all depends on how their credit is now. $50K might be a significant liability for them or it might be relatively inconsequential. Frankly, if they're concerned about it they probably need some professional input, from a personal financial advisor if they have one or perhaps someone from the institution making the loan about how big of a liability this represents in the context of what their credit report says.
posted by nanojath at 9:04 PM on July 1, 2006

bascially co signing is just like HER getting the loan -
however you are on the line for paying it back too, you both benefit if its paid off on time and both are hurt if it goes into defualt. This being the case, you probably benefit MORE if it all gets paid off on time because it will be on of the first staples of a good credit score for you. For her, she probably already has plenty of a credit history and its more of a possible liability than anything else.
posted by crewshell at 9:32 PM on July 1, 2006

the answer, as has been stated before, is yes. however it isn't going to negatively affect anything unless it isnt paid back on time.
posted by sophist at 12:34 AM on July 2, 2006

Not my field, but my understanding is it counts against both of your credit potential. By that I mean, if she is liable for your loan, it would lower her ability to take out other loans. The impact is based completely on her ability to pay your loan herself and any other loans she has or would like to take out.

It won't have a negative effect on her credit, just lower the amount she can now take out herself until it is paid off in full. The risk she takes is that you default and she can't pay. Then it affects both your credit ratings.
posted by qwip at 1:49 AM on July 2, 2006

On the other hand, if the loan is paid back on time, when all is said and done, it could make her credit rating better than it was before.
posted by bingo at 5:44 AM on July 2, 2006

Co-signing will affect their credit rating because it will appear as a liability

Yes, if it's reported. Might be, might not. I've co-signed on a loan before, and it never showed up on my report.

Let me break it down from the co-signing parents' perspective:

--If it's paid on time, and it's not reported, it's as though nothing ever happened.

--If it's paid on time, and it's reported, it could affect applications for a mortgage or other large transactions where the lender is going to compare outstanding liabilities against income. See mendel's post above. Credit card companies will love them, though. And as several have said, once it's paid in full, that will look good regardless for a couple of years, until it ages away.

--If it's not paid on time, and it's reported, obviously that has a negative effect.

--If it goes out to collection, then the collection agency can report the bad debt. At that point, something that the lender didn't report against the parents before might start being reported.

--If the lender or an agency gets a judgment against the parents in court, that of course would be reported. And be negative.
posted by gimonca at 8:40 AM on July 2, 2006

So you're trying to get ammunition to argue with your parents? :)

Sorry, not here: When you co-sign for a loan, you're putting your name on the line, just like if you were the original recipient of the loan. It affects their rating (right off the bat, in a negative way), and if the loan is significant, may in fact affect their ability to get a mortgage, or at least affect their interest rate.
posted by Merdryn at 8:42 AM on July 2, 2006