I hear the question all the time — is it okay to co-sign or guaranty a student loan for my child or grandchild? It’s a common issue, just read this quote from the Wall Street Journal:
Roughly 93% of all new private student loan dollars extended to undergraduate students during the current academic year also included parent or other adults’ signatures on them, up from 74% in the 2008-09 school year, according to MeasureOne. Though federal loans still account for more than 90% of outstanding student loan debt, the private market for student loans has been growing.
The title of the article yields the answer to the question of whether it is okay – Over 60 and Crushed by Student Loan Debt. Americans 60 years and older currently owe $84 billion in student loan debt. This number is up 44% from 2010 and amounts to $33,800 on average for those over 60 with student debt. Our seniors are getting crushed. The loans are not dischargeable in bankruptcy (except in extremely rare circumstances). Unlike Federal student loans, private student loans offer no flexible repayment options – leaving the elderly with debt that is not dischargeable and little wiggle room to survive. We do have strategies in this situation – including discharging all other debt with a bankruptcy – and repositioning assets so that the student loan creditor cannot garnish the bank account of the elderly client. We also have a plan to protect the home from being subjected to a lien if the student loan creditor sues and obtains a judgment. We use Chapter 13 to stop the creditor from taking action to collect, while paying them little or no money. This buys five years of relief and can be continued by filing a new case every five years. While we can’t discharge the debt under current law – we can neutralize it while we wait for an Administration and Congress that realizes something needs to be done.
So yes – we have strategies to deal with the problem and if you have that problem – you are well advised to learn your options. But let’s get back to the question. Should I guaranty my child’s or grandchild’s student loan? Here is your answer:
• If you are financially able and willing to pay the loan on the assumption your child or grandchild does not, then it’s okay.
• If you are not financially able or willing to pay the loan – then you should NOT co-sign or guaranty it.
• If you are going to do it anyway and are given a choice between the lower rate private student loan and a government backed student loan – choose the higher rate government loan – NOT the lower rate private loan. (You will then at least be able to avail yourself of the federal program flexible payment options)
We taught our children, “Just say No to Drugs.” A great program with many successes. It’s time for a new one – “Just say No to Guaranteeing Student Loans.” I know – it is hard to say no to your loved ones – but if it comes to your economic survival in your retirement – you owe it to yourself and to them – to say “No.” If you have some extra cash or can afford to budget a fixed amount per month or year to help with their education – while not putting at risk your retirement – that’s fine – give them the money. Last week a client called me and asked, “Is it okay if I guaranty the loan?” We had just completed a successful Debt Resolution program for the client – getting rid of $95,000 of credit card and restoring his financial future. I told him – “No, it’s not alright.” I then went on and explained these issues and concluded with him that if it’s going to happen – “no private loans, make it for the lowest possible amount and make sure the child works while at school and allow the program to run more than 4 years if needed.” I also suggested military service – as they have great programs to cover education costs. In the end, I said to him – “I’d rather you put the money on credit cards — and if you find you can’t pay them (which is a foregone conclusion) we can do Debt Resolution down the road again.” My reasoning is simple. We can’t negotiate down student loan debt because the student loan lenders know the debt cannot be discharged in bankruptcy. Credit card debt, however, is dischargeable and we can use bankruptcy and debt resolution (our solution outside of bankruptcy) to resolve the debt. Granted, this is a tough strategy – but it’s a tough world!
If you’re facing hard times – you need the right answers – and aggressive smart strategies to survive and level the playing field which is stacked against you by the financial industry. If you’re in fight, the key is to come out on top. On that note – be sure to keep in mind let friends know of our next FREE seminar on May 1st – Debt Free -from the Dream to Reality.
Have a great week and let’s say good bye to snow until . . .
P.S. Did you know that THAV GROSS offers free consultations for business, financial, and tax problems? Call us anytime – (248) 645 – 1700 or CLICK HERE to send us a message.