Co-Signing a PLUS or Private Loan?

Paying for College
1

<p>Hello,
This question is actually about helping a close family friend's child out. (I have one in college of my own and will have 2 there next year).</p>

<p>The family situation is that there had been a previous bankruptcy due mainly to medical bills in the past, and they have had a hard time getting back on track financially, despite both parents working 2 jobs and student also working.</p>

<p>They have been able to get the increased Staford for the student since they were turned down for all but a very small Parent Plus Loan. They have no other close family that is able to co-sign for them. We have great credit and are considering co-signing. They need to borrow about another 6K to buy some needed equipment (It is a 2 year tech type school with a great placement history) that will last the full 2 years and he will be able to use it in the work setting when he graduates too.</p>

<p>I had planned on co-signing the PRIVATE STUDENT LOAN through Wells Fargo. What I got to wondering as I have been reading up on the pros and cons is would I be able to co-sign for the PARENT PLUS instead and let his parents look in a fixed rate instead of the variable on the private one? I have not needed a PLUS loan for ourselves yet so am not vary familiar with how they work.</p>

<p>Thoughts?</p>

<p>DJD</p>

2

<p>Cosigner = fool with a pen.</p>

<p>I would not be co-signing loans other than for my own child (even then I doubt if I would co-sign a loan).</p>

<p>When you co-sign it is going to show up on your credit report like you owe the money. If could affect your credit worthiness if you may need to take a parent loan for your own kids.</p>

3

<p>I agree. I would not cosign for anyone. Not even my own kids. If I could afford the financial risk of the loan i would take it in my own name before I would ever cosign. You have all the risks and liabilities of a loan and no control over it. If something goes wrong your credit rating may be down the tubes before you ever even know a late payment has been made.</p>

<p>Interestingly, my daughter did a consumer finance class at her school and after learning about cosigning loans and was shocked - she called me to tell me all about what she had learned and that she would never cosign a loan or ask anyone to do it for her. Gotta love it when they learn things you have tried to tell them about before and call to educate you :rolleyes:</p>

4

<p>Another approach might be to use a peer-to-peer lending site, which would serve as a broker for you lend the money to your friends yourself. Check out GreenNote, for example.</p>

<p>Edited to add - I have lent money to friends and lived to tell the tale. It is necessary to be able to forgive the debt if you need to, but it can work out just fine.</p>

5

<p>Thanks for the replies. I AM well aware of the liabilities of co-signing for another. I guess part of why I feel comfortable (at least more than most people might) is these few items; it is ‘only’ a 6K loan, not his whole thing. That is less than 1% of our net worth, not a big deal to me. I have talked to and received email from the lender that we get a notification before any late fees are applied, I can be released after 24 on time payments, and he has agreed to do an automatic payment with a confirmation email to me each month. IF he would default his parents are willing to sign a Notarized Note that they will make the payments. IF even that falls through, the payment on 6K on a 15 year note is not a big deal to me.</p>

<p>I have thought about just loaning it to him directly, but I would rather not keep track of it for 10-15 years, and I feel pretty sure that he would follow through for the first 24 months and I could be released.</p>

<p>As far as having it show on our credit report, that is also not a big deal in our case. I just qualified for a 200K Home Equity Line and have no other debt. Partially set up the line for potential need for my own kids schooling along with some projects around the house. So far we have been able to help our 2 kids out of our yearly income along with them working also.</p>

<p>I guess the one question that I am still wondering is if a Parent PLUS is able to be co-signed to look in the better fixed rate?</p>

<p>PS - You all made VERY good points. I am blessed enough to be in a financial situation of no debt, huge home equity, and decent and stable income all at once. If I was not in this situation, I would likely NOT be considering this. We all need to take care of OURSELVES first, so that we can then someday help others.</p>

<p>DJD</p>

6

<p>I don’t believe you can cosign for a parent PLUS loan. I am 99.99% sure the only people who can take responsibility for a parent PLUS loan is the parent(s). So it would have to be be a private loan.</p>

7

<p>You can’t co-sign a Plus loan.</p>

<p>*it is ‘only’ a 6K loan, not his whole thing. That is less than 1% of our net worth, not a big deal to me. *</p>

<p>For THIS year…what year is this student? If he’s not a senior, what about the following years?</p>

<p>and I feel pretty sure that he would follow through for the first 24 months and I could be released.</p>

<p>**How do you know that you’ll be released after 2 years? **Since Plus doesn’t use co-signers, you couldn’t have gotten that info from Plus. What if the loan he does get won’t release you until the loan is paid for?</p>

8

<p>???</p>

<p>it is ‘only’ a 6K loan, not his whole thing. That is less than 1% of our net worth, not a big deal to me.</p>

<p>On another thread you say that your child’s EFC is $3k, and on this thread you say that $6000 is 1% of your net worth. It must be all/nearly all in home equity.</p>

<p>If your EFC is $3k, then it sounds like your income isn’t very high. So, I’m surprised that you’re considering co-signing a friend’s child’s loan.</p>

9

<p>Yes, you can co-sign the parent PLUS loan. PLUS does allow co-signers.</p>

10

<p>There you go - kelsmom is a FA officer so she is the one to trust here.</p>

11

<p>Thanks for the clarification. He is meeting with his FA person and his parents this week to see what would be best if they have a co-signer available. This would be a ‘one time’ loan (not yearly) as his school, which is about a 30 month with no real breaks like a traditional summer, will loan directly for the cost of tuition. These funds would be for a one time purchase of equipment and software that he needs, and would be able to use in the work force after he is done with school too.</p>

<p>As far as our EFC goes with my oldest daughter who is a sophomore this year, it has varied between about 4K-6K with 1 in school. This next year our second daughter will start, so I expect each of them to have an EFC of not much more than 3K roughly.</p>

<p>And yes our assets ARE mostly in ‘non counted assets’ being roughly 50% in our home equity and 50% in ROTH IRA accounts. Not a whole lot in ‘counted assets’… we actually fall under the exemption for ‘counted assets’ so all of the parental part of the EFC comes from our income instead of assets.</p>

<p>So to the question of not having a real high income and still be willing to co-sign, that IS a good point. I guess how I look at it is I truly believe, within reason of course, that those of us who have been blessed with much, which I feel have even though our income is not extremely high, should help those have not been as blessed. </p>

<p>The payment on this loan would be under $70 per month. I HAVE talked to the private lender and they have emailed me the documents that show that they WILL give the co-signer an Email AND a call if there is a late payment before there is any type of action taken, and it will not affect out credit in any way if we take care of it by the time the next payment is due. </p>

<p>To the point of co-signing and then maybe not being able to also do so for our own kids if needed, I really dont think that is something that <em>I</em> need to worry about… we have a 300K house that is paid for that we could tap for a Home Equity Loan if needed, and we could take a withdrawal at any time also if needed. So I feel I am still in a very good position to also help my own kids if needed. So far we have been doing good with our oldest taking the Staford & Perkins loans (she is considering a career that helps pay off student debt) and with her and us each putting in about 4K from our incomes, along with about 5K in grants (both state, federal, and merit). She also has excellent credit, so could probably take out any needed additional loans on her own.</p>

<p>Again, these are VERY good point you all bring up. Each of us needs to look at our own personal situation and remember to take care of US first, and THEN if desired, see how we can help others.</p>

<p>Thanks,</p>

<p>DJD</p>

12

<p>^^Bless you, dj, for being such a good friend to your friends in need.</p>

13

<p>One last thought…</p>

<p>if this friend’s child were to flake on the loan, would it negatively affect your friendship? That maybe something to think about. </p>

<p>If for some reason the student doesn’t finish the program, or the student is flaky with his earnings once the loan is due and doesn’t pay, will there be any “fall out” between you and your friend?</p>

14

<p>mom2collegekids, </p>

<p>That IS something that I have actually given a LOT of thought to. What I had not mentioned yet, I guess partially because I didn’t want it to affect the responses I got, was that this would be for my daughters long term boyfriend. We have known the family for quite a while and they have been dating for about 4 years.</p>

<p>I have been working on an agreement between him (boyfriend) and his parents and myself in regards to doing this and how things would happen if I did have to step up and make payments. I it is very clear that this would stay in affect regardless of their relationship status. If they were to part ways, knowing the character of the family I would not expect any negative fall out.</p>

<p>His parents are not able to get much of a PLUS loan because of their credit situation, but they are the kind to work their butts off to make ends meet and fulfill their responsibilities.
They got in a bad financial situation a number of years ago that started with some very serious health issues and less than great insurance. His dad then had to take a non-traveling job, at much less pay, to be able to be home more and help with mom’s health issues and helping more with raising the kdis. Between less income, huge medical bills, and so forth it really put them in a pinch. They both now work 2 jobs to try to get back on their feet and catch up on things. Mom is doing much better now.</p>

<p>But YES, this is definitely something I have thought about.</p>

15

<p>^^Again, bless you. It is refreshing to see someone have such a good heart. I would do the same thing in your place.</p>