Student debt: Tips for parents who cosign on loans


"I had to rethink my whole financial situation whether I could retire will I have to work more? It kept me up at nights," Steve said.

A whopping two-thirds of undergrads now graduate with student loan debt, making a total of $1 trillion currently waiting to be paid back.

But will it be? For the first time ever, the student loan default rate now exceeds the credit card delinquency rate.

"Unemployment is high, average interest rate at graduation has increased. The amount of debt each year increases, making it much more difficult for students to be able to afford their student loans," said Mark Kantrowitz with

If those loans are private, more often than not, there's more than one signature on the bottom.

"More than 90 percent of new borrowers have a cosigner on their student loan, that's up from less than half before the credit crisis," said Kantrowitz.

Experts warn it's a recipe for disaster for students and parents.

"Parents are basing their decision to cosign upon the traditional view that when you went to college your earning power was exponentially greater than if you didn't go to college, and that rationale no longer holds," said attorney Ann Margaret Carrozza.

So what can you do if your child defaults and you cosigned? First off, you need to contact the lender immediately, and then ask if they can help you with either an interest rate adjustment, or a deferment, which suspends the payments temporarily and the interest is also suspended. Or, at least ask for forbearance, when the payments are temporarily suspended but the interest still accumulates. Remember, a default can put a lot of stress on a family.

"When a student defaults and a parent is called back from retirement to go back to work to make these payments it's certainly not a good chapter in the parent child relationship," said Carrozza.

Steve says he didn't think cosigning on the college loan would have this result, but he has no regret.

"If I didn't do it and he didn't pursue it I'd feel guilty maybe if he didn't get the education he wanted or deserved," he said.

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