We Cosigned Our Unemployed Son’s Student Loans. Now We’re Screwed

[oldfort]

<p>Scenario</p>

<p>Lender: Your loan rate is 2% now, it is a teaser, which means it could go up to 4%, but probably will not.</p>

<p>Consumer: I really want this house, I am not going to be able to afford it if the rate should go to 4%, but it probably won’t (I am really praying it won’t), I maybe getting that raise/promotion…</p>

<hr>

<p>If a person can’t take his pay, subtract out monthly payments to figure out if he could meet all of his obligations then he shouldn’t own a home, he probably should be someone’s dependent. </p>

<p>But I don’t think it is the case of people not understanding terms of a loan. It is greed on the consumer’s part. They want more than what they could afford, and then blame someone else when it all falls apart.</p>

[mom2collegekids]

<p>We have a friend whose D got a good aid package + lots of loans to get a degree in BALLET at OOS private (never even knew such degrees existed). She injured herself & can no longer dance. Had to go into MORE debt at in-state flagship to get a degree in early childhood/education so she can get a job & help pay down her debt. Of course, she has also moved back home.</p>

<p>Things like this happen. Money is borrowed so the child can go to X school for a certain special major, and the kid changes his major. </p>

<p>Or the child/family thinks, “Oh, when he graduates, he can live at home so he can save rent money and pay his debts.”</p>

<p>But, what if his job isn’t in his hometown? Many cities/counties don’t offer employment in a wide variety of areas…especially STEM jobs. If the student is an engineer, and to get employed means moving to a big city where those jobs are, then rent is unavoidable. </p>

<p>Or what if he finds a significant other in college and wants to live where that person lives (or live WITH that person)? Or maybe living at home after four years of freedom is too tense? The concept of moving back home while working doesn’t mesh well with many situations.</p>

[BCEagle91]

<br>

<p>All of us without loans condemning those with loans.</p>

<br>

<p>I had a college loan.</p>

<p>They asked me what I wanted in grants and loans and I wrote $1,000 for
each and that’s what they gave me. Yes, I was a little stupid, I
should have asked for the whole amount in grants. So they sent me
another piece of paper which I signed. I had four years of work
history behind me so I guess they felt that I was good for it.</p>

<p>If they had put a piece of paper in front of me that said I was
borrowing $3,500, would I have signed it? Probably. I had no
conception of debt back then. I had savings because I worked but I had
never borrowed money before and didn’t know what the payments would be
like nor what my income would be like.</p>

<p>My mother grew up in the depression so she was far more careful with
money and debt. She didn’t avoid debt but she used it wisely. She just
didn’t communicate the understanding of debt to her kids.</p>

<p>At any rate, I was recruited one year out of college and was able to
pay back my college loan in a very short period of time. Between then
and when our kids were going to college, I learned a lot about
bubbles, debt, loans, savings and handling money. Fortunately most of
that education was from reading; not personal experience. I imparted
that knowledge to our kids while they were growing up - both in word
and deed.</p>

<br>

<p>I don’t know what process people go through. Scholarships lost and
replaced by loans, costs increasing every year, sit down and sign
without really getting an explanation of what is going on.</p>

<br>

<p>We don’t have financial education in our high-schools and that’s where
we should have it. Parents should teach their kids this stuff but
parents have been just as bad as their kids on this since the early
1990s.</p>

<br>

<p>It is easy to start, maybe “only” $10,000 the first year, but then
you might need $20,000 the second year, $25k the 3rd year… $40k to
graduate with… oops! $100k total in loans! and once you start how
can you stop? Leave college with debt and no degree?</p>

<br>

<p>I did that. There are lots of people that do the same thing
today. Some do it because they have no choice. Others may want to work
for a while to save up for college expenses to go for the next
year. Many may go part-time.</p>

<br>

<p>In some cases it is probably unfair to blame the ignorant borrower.</p>

<br>

<p>Is ignorance an excuse? If so many people didn’t borrow so much money,
college costs would be lower and those going to college wouldn’t have
to borrow so much.</p>

<br>

<p>I just cosigned my son’s lease in Boston. Fortunately his lease has
him responsible for his portion of a 5 bedroom apartment. I cosigned
for $850 per month, or $10,200. I told him I would not cosign a
lease for the entire apartment, over $50,000!</p>

<br>

<p>Rents in Boston are crazy. It appears that increases in 2011 were
pretty big. I’m not sure what kind of property your son rents but
$4,000/month for a 5-bedroom may not be that bad. The group thing
sounds a bit scary - I know people that have done that sort of thing
though. Young college grads making a professional income just getting
started in life. It appears that demand for housing is so strong that
replacing a roommate isn’t that hard to do.</p>

<br>

<p>Is that a joke? Who doesn’t know that a loan means you have to pay
back?</p>

<br>

<p>Apparently a lot of people that subscribed to the Greater Fool Theory
in both the internet and housing bubbles.</p>

<br>

<p>I think nearly everyone understands that the loans need to be paid
back, but in a vague sort of way. A lot of people don’t get how fast
interest can pile up, how unlikely it is that a new graduate will
land a $250,000 job the first year they graduate, etc.</p>

<br>

<p>A former co-worker was a Computer Science professor at a state college
and told me that people in general don’t understand interest. He asked
one of his classes a few questions related to interest and loans and
was surprised at how weak his students’ understanding of the area was.
His class mainly consisted of math and computer science majors so they
had better quantitative skills than other students.</p>

<br>

<p>But I also feel banks and other loaners have a responsibility to act
in good faith</p>

<br>

<p>This is too late in the pipeline. The colleges need to do it. By the
time it gets down to money, the student and parents are already sucked
into the system.</p>

<br>

<p>Everyone has a “victim” attitude and their hand out. This is not how
we build a strong society and community.</p>

<br>

<p>I’ve read pieces on how home-ownership helps build communities. I can
believe this because owning a home is a huge responsibility and you
spend time and money taking care of and improving your home. This is
the way it is with kids too. The things about building a strong
society and community is that it takes a lot of time and effort from
those that are responsible and that have a vested interest. It can be
as simple as who does the dishes when the sink is full, to keeping
your yard clean to doing a park cleanup project.</p>

<br>

<p>What these families often don’t realize is that as low income folks,
they often really aren’t living on their low salaries.</p>

<br>

<p>Something that I hadn’t thought of.</p>

<p>It’s also the difference in college degrees by major and by school.
I was quite surprised that our son had a hard time finding work - and
also getting a lot of simple quiz questions. Employers don’t know what
they are getting these days for the most part - is the school/program
rigorous - did the prospective hire take rigorous courses? I think that
more and more employers want advanced degrees because it is harder to
get an advanced degree. They may also want more specialized knowledge
but it may be that the Masters is the new Bachelors.</p>

<br>

<p>My points are (1) that sometimes when loans are taken, circumstances
change. Foresight, unlike hindsight, is not always 20-20.</p>

<br>

<p>I’d love to see a high-school course on economic history. The same
things happen over and over again - you just have to go back and read
about it. History of bubbles would be another fun course.</p>

<br>

<p>And they do not have time or interest in reading and don’t use a
computer. On the news they see “all time low interest rates”, “now
is the time to buy”. All the good stuff about home ownership. There
was a push by the government to increase home ownership in the
US. Live the American dream. So the honest blue collar worker goes
to the “professionals” that sell the mortgages. That is what they
do, they sell mortgages. And they find creative ways to sell
them. Many of the sales people were dishonest in their sales, which
is why large companies like Wells Fargo (the other companies escape
me) are now paying HUGE fines for predatory lending.</p>

<br>

<p>The housing bubble in certain areas of the country weren’t as bad as
they were in the worst parts. MA and NH haven’t been that bad but we
had a housing bubble in the late 1980s and people still remembered
that and the are didn’t go crazy. Texas had an oil boom followed by a
bust which collapsed housing prices. You may not be as well-educated
as others (though it seems to me that the well-educated got hammered
in the housing bust just as much as others), but you should be able to
take advice from your parents or grandparents. Housing bubbles and
busts come along regularly if you have a long enough time horizon.</p>

[CTScoutmom]

<p>momto2collegekids, and vlines, I agree with you both!</p>

<p>I work as a tax advisor in a small city, and have clients for all income levels. Each year I turn a number of families away because I won’t prepare their tax return the way they want. They insist that they are fully supporting their family of 4 on $11,000 of income, when they are in fact providing less than half, and don’t qualify for the earned income credit (the lovely credit that gives them a big tax refund). I had one last year who didn’t believe me, and insisted we calculate the support, and it was eye-opening for her. When she got her $100 a week in food assistance, it didn’t sound like that much. Multiply be 52 weeks, and it grew to $5200! Then we looked at fair market rent (she had a section 8 voucher), we discovered she had a subsidy of about $600 a month, or $7,200 for the year. Free school lunch - 180 days x $2.50 x 2 kids is another $900. that’s $13,300 in assistance every year, and that didn’t count the trips to the food pantry, the state health insurance, or the free limited cell phone and her teenage son carried. </p>

<p>She wasn’t happy to discover she didn’t qualify, but she thanked me for explaining, and for helping her understand how much needed to change. Her son was going to join the ranks of those with huge loans, to attend a local cosmetology school, but I think we changed his mind too (I’ll find out when she comes back in February). She had thought that his income after completing the program would allow him to pay off those loans quickly, but was not counting on him not qualifying for all the assistance.</p>

<p>It is not unreasonable for students to take the stafford loans, but otherwise they need to look at their abiity to pay back with a minimum wage job, because that’s what they might be stuck with (if they can even get that). For the middle class families, this may be an even bigger problem, because they have a higher EFC, and many seem to be filling that EFC through loans. That’s not the intention of the EFC calculation, it’s meant to be what the family can afford to provide based on their income. Some could afford it with a few sacrifices (like that $150 a month cable TV bill), but many don’t seem to be able to.</p>

<p>Perhaps there should be two calculations: one to tell families what they should be able to afford based on income, and another to show they how much they can afford to pay back in loans (and what it will really cost them).</p>

<p>While I don’t see the student loans in the same light as the predatory lending with mortgages, there are some problems with the system. Part of the problem is predatory behavior of some for-profit schools, but it’s not the whole problem. We need to get back to our roots of encouraging more to go into the trades, rather than college, and reestablish the value of a college education (and the value of a HS diploma too).</p>

[BCEagle91]

<br>

<p>We have a friend whose D got a good aid package + lots of loans to get a degree
in BALLET at OOS private (never even knew such degrees existed). She injured
herself & can no longer dance. Had to go into MORE debt at in-state flagship … </p>

<br>

<p>I know a dad that has five kids and his daughter started college this fall at a $45K/year private religious school. He had about $30K saved up for college (for all five kids). He makes a good income though I don’t know whether or not his wife works. We talked about this in the spring and I suggested the local state college which was nearby and inexpensive. He was thinking the same thing but it appears that his wife and daughter overruled. His daughter is going to school to become a teacher and the local state college would have been perfect for that.</p>

<p>The vast majority of the folks that I talk to at work planned things out. Things didn’t always work out but I’d say overall that I haven’t run into a lot of financial disasters. Many of the kids do have some debt but I think that expectations are set early.</p>

[pageagain]

<p>It is the consumers responsibility. Some posts I found offensive! I am a nurse and not a complete idiot. Every nurse I know understands loans and what they can borrow! might not fully know how to engage in e trading but we understand loans need to be paid back. This “poor blue class on welfare” excuse is just that for most. I grew up surrounded by many poor uneducated people who knew about interest and whAt they couldnt or could afford. Take some responsibility in life and educAte yourself. Remember no one but a rare few are destined for greatness and a McMansion they can afford.</p>

[PolarBearVsShark]

<p>I cosigned my kid’s loans because I judged him stable and industrious.</p>

[Wolverine86]

<p>I’d also love to see some “real-life” classes in HS about how to manage money in general, not just for college-related finances. But since these classes (for the most part) don’t exist now and never have, how did the vast majority of people learn not to get suckered in to debt they couldn’t afford? It’s basic math skills, not rocket science.</p>

<p>Broken as parts of it may be, the system is actually designed to protect the student from themselves. Students cannot borrow more than the limits of the Stafford loans on their own. I believe that currently sits around $27,500 over four years, which is a manageable amount of debt over the course of a 10 year payoff. Parental co-signers, generally with at least 17-18 years of real-world adult financial experience under their belts, ought to know better than to allow their children and themselves to be saddled with more debt than they can handle.</p>

<p>Since the current average student debt at graduation is in the mid $20K range also, I don’t think the majority of student and their families are borrowing inordinate amounts. For every $60K/$80K/$100K borrower there are multiple borrowers that graduate with little or no debt. The exceptions to the rule get highlighted and made to seem like it’s the norm. There’s no “shiny” news story when common sense folk stay within their means and borrow sensibly, whether it be for homes or for college. I’d still like to think that represents the majority of people in this country…but it’s not as sexy as screaming that the sky is falling.</p>

[lake42ks]

<p>

Yea, I understand that lenders wouldn’t want informed borrowers,

</p>

<p>It seems money is made off less informed consumers in every sector, or votes cast this year.</p>

<p>

So, yes, are we at fault for being a society that does not know the difference between Lance, Louis, and Neil Armstrong.

</p>

<p>Kids in elementary schools know them, but won’t they be confused today as big money stands by one?</p>

[jym626]

<p>Wow, ctscoutmom. I am amazed that the clients you desrcibe can afford private tax advising!</p>

[lmkh70]

<p>Also…what you said…do not co-sign your spouses…includes do not consolidate married. US Direst loan convinced us to consolidate married, my husband and I. Then, our baby was born to the NICU and serious medical problems. I would have qualified for a deferment where interest does not mount during this time. He was tube fed for 3 years and still needed a lot of care for a while. (he is doing well now). However, with the interest rates being where they were, over 8%, the loans quickly doubled. Now we are over 40 and still working down those loans. I am glad the interest is so much lower now, that helps. But…still…I regret ever consolidating married.</p>

[mom2collegekids]

<p>*> What these families often don’t realize is that as low income folks,</p>

<br>

<p>they often really aren’t living on their low salaries.</p>

<br>

<p>Something that I hadn’t thought of.*</p>

<p>Well, it’s true. Low income families don’t pay fed income taxes. They often qualify for tax credits (free money), their kids get free breakfast/free lunch at school (which is like being given an add’l untaxed 100 per child/month), they may receive food stamps, subsidized housing, free/reduced cost healthcare, reduced utility costs, and other local, state, and federal bennies.</p>

<p>I don’t begrudge these things; my point is that the family or student who thinks that their family is really living on XX low salary really isn’t. Another family with an income of $10 - 15k more may not be living any better because their income is beyond qualifying for most or all of these extra bennies.</p>

<p>There are calculations out there that show that a low income family can actually be receiving various benefits, etc, that bring their income/lifestyle to that of a family earning $60k per year. </p>

<p>There was even a recent thread where a $25k per year family was afraid of having the unemployed dad accept a good job because it would mean a loss of too many benefits…which caused them to question whether they’d come out ahead by having him work!</p>

<p>But back to the point of some low income families misunderstanding that their “well paid” new grad won’t have the extra money to pay back big loans like they think he should because they are wrongly comparing the “new grad salary” to their low income family salary. </p>

<p>When their single-earner new grad (without any dependents) starts working a $40-60k per year job, guess what happens…whammo…no/few tax deductions, no/few tax credits, a big chunk going to fed/state/etc taxes. And the employer may take a chunk to go towards healthcare and the (wise) employee has a chunk going to a retirement acct/401k/etc. If the new grad must live in a big city for his job, then rents are high (and not subsidized), buying food for a single person can be pricey (those small pkgs are not economical), the purchase of a professional wardrobe will take a chunk of a new employee…all of the sudden that “big income” isn’t really realized. </p>

<p>And, if the new grad has the same experience as my H did…he’ll have to buy a car when he graduates and gets a new job. H always lived on campus and didn’t have a car. But, when he got his first engineering job, then he quickly had to buy a car. He couldn’t even wait for his first paycheck. He borrowed interest-free money from his brother (and not everyone has that luxury), bought a very used car, and paid his brother back over time…while H was also paying rent, etc and SMALL student loans. </p>

<p>The thinking that a $50k per year new grad can “live on $30k and pay $20k towards loans” isn’t true. He won’t even have $10k to put towards loans.</p>

<p>Posters on CC have done the math on other threads and have demonstrated that a single person earning $50k per year, takes home X, and they after “living expenses” are covered, the remaining amount is too low to pay big loans.</p>

[BCEagle91]

<p>CTScoutmom - I learned a lot from your post.</p>

<p>mom2collegekids - I haven’t seen those threads - I guess that they are more likely in the financial aid forum where I don’t spend much time.</p>

[megpmom]

<p>I found “Idiot’s Guide to Financial Planning for Your 20’s and 30’s” or something similarly titled for my college aged daughter. While some of it doesn’t apply to her now, it will be a good resource in a year when she graduates and has to start managing all of her own finances. She already has a written monthly budget and manages her own checking acct. She also pays all of her own apartment related bills (for which we did not co-sign). We just transfer a set amount of $ each month and let her deal with how it is spent (rent, groceries, etc).</p>

[Bowman]

<p>I find it interesting that most people on this thread are saying that people who accrue such large amounts of debt are usually lower class or uneducated. In my personal experience I’ve seen a lot of middle class families who don’t qualify for much government or school financial aid rack up thousands in loans. I knew a kid who family lived very comfortably and parents were highly educated and well to do. He was a fantastic singer and was accepted into a prestigious conservatory. He did not qualify for aid and will graduate with nearly 200k in loans. I think a lot of kids and families work really hard and see a prestigious college as something they deserve. They rack up thousands in debt believing in the dream. It’s more than a “blue collar” problem.</p>

[Naturally]

<p>Yeah, I don’t think this is so much a socioeconomic issue. (Well, I guess it sort of is because the ultra-rich don’t need loans at all, but . . .)</p>

<p>I came from a middle-class family and when I was in high school I thought $50,000 sounded like SO much money. It didn’t occur to me to think about how much money it would cost for rent, food, electricity, and so on. I knew, vaguely, that adults paid these things, and that I would have to pay these things. But it was only once I got out in the “real world” that I realized just HOW MUCH they add up to. And that was without any particular desire for iPhones and such, which some kids regularly get from their parents. If you keep up with technology as an adult, that adds up too.</p>

<p>Sure, I think people should take responsibility for their own actions, but there are two actions involved–one from the person taking the loan, the other from the person offering the loan. There’s a reason we don’t encourage shysters to set up shell games in nursing homes, for example.</p>

[CalDud]

<p>I’m pretty sure my parents only co-signed my loans because I would never be able to afford to attend a state university without them (mostly to cover cost of living since we get free tuition anywhere in CA). I come from a family that makes 100K, but they are paying off many debts, bills, and other things that make it seem like we only run on 60K. </p>

<p>Probably also co-signed the loans on the fact that my sister and I both picked practical majors: accounting and applied mathematics. We’re also the first two people in the history of my family to have ever gone to college.</p>

<p>When I have kids I’m going to make them bust their butt in high school to get all of the merit and aid money they can. Obviously I would be willing to drop some money on names like Exeter for HS and MIT for college but not some obscure-named mid-west university my parents gave me a reality-check on not to attend because tuition alone was 42K out-of-state. The next practical step for me to take is going to bust my butt at this university and apply for scholarships to see if I can cut the costs down.</p>

<p>If I have a kid that needs to take out a significant amount of loans (60K for all four years), it better come from a top-name university. I would not pay a cent otherwise. Even if I do make around 100-200K at the government jobs I’m looking at (after obtaining a master’s degree). I still feel like I’m getting ripped off by my state-university by having to pay 13K for room & board a year.</p>

[legendofmax]

<p>In my case, my parents were not college-educated or financially literate, nor did they support my education. My high school did not teach finance. Lenders didn’t seem to have any problem extending money to me. Why would a lender offer to lend me money unless they had some reasonable expectation I could afford it, I thought?</p>

<p>Of course, in hindsight, knowing what I know now…</p>

<p>If I ever become a parent someday, would I cosign a loan? No. Because at that point I think it’s going too far. Public loans are enough to finance a good education.</p>

<p>I think consumers have to take responsibility for their own finances, but at the same time, I think lenders have a responsibility to stop inflating the bubble by giving consumers overconfidence and distorting their perceptions of the real underlying risks. Many kids entering college have absolutely no concept of cost, and they overestimate their job prospects. Luckily, the financial crisis got the necessary dialogue going, but it’s still not enough. We need some way to better educate students/parents who are considering taking out all this money because they think it’s a necessary evil. It’s not.</p>

<p>I’m a prime (possibly a perfect) example. I had perfect scores/grades across the board, valedictorian status, and a world record upon applying to colleges. Many Ivies and other top schools accepted me. I felt that if anyone could get a job, it’d be me. I worked hard to get where I was, so I figured hard work would get me through. Ironically, financial troubles crushed many of those assumptions and I wasn’t able to find work until 6 months after graduation.</p>

<p>Long story short, people are notoriously bad at understanding risk and absorbing negative variance swings when it comes to personal finance. We underestimate it all the time. Heck, even our banks couldn’t handle it properly. It’s something we, as a society, need to understand better. </p>

<p>I think oldfort’s example is a good one, even though I’d like to discuss the question of whether or not it’s about greed. With the housing bubble, people took out loans to afford bigger/better homes they couldn’t afford. In this case, is it “greed” to take out loans for a top education? Maybe. </p>

<p>In my case, I didn’t have to face the issue of private loans until a year or two into undergrad, so I felt like my choices were either 1. Take out the loans and get them cosigned, or 2. Drop out of the Ivy League and transfer to another school. The second option was incredibly messy and I couldn’t see any clean way to pull it off, so I went with option 1 since at least I could finish the degree that way.</p>

<p>On some level, to be fair, I did think to myself, “I deserve to attend this school because of all the crap I’ve put up with over the years and how much I achieved for myself – I’m not going to back out now, but instead work harder like I always have and figure it out.” It might be greed, it might be hubris – but I saw it more as achieving something through more work. Unfortunately, I overestimated how much I could chew.</p>

<p>Nowadays, I’ve got maybe $40k left in public/private loans combined. It is uncomfortable (esp. living here in NYC), but at least manageable – I can make the minimum payments each month and have just enough left over to pay for insurance/contribute to 401k/place the rest into savings for an emergency fund. But if I could do it again, I’d choose a different school. Sadly, hindsight is 20/20.</p>

<p>So, generally speaking, choose a school where you’re not likely to take out debt that public loans can’t cover. Private loans can be particularly vicious.</p>

[evitaperon]

<p>

IMO, students to should go to a college that they (and their parents) can afford to pay with minimal loans. If that is CC, so be it. Many people have been successful with just a CC or state school degree. There is never any guarantee that student will find that “great job” after graduation, or won’t change their mind that they want to be a physical theatre artist (my kid). Having enormous amounts of debt hanging over you limits your freedom in choosing a path in life.

</p>

<p>Investment banks don’t recruit from community colleges though. What if the kid is interested in finance?</p>

[Wolverine86]

<p>I think what families of all economic levels need to do is learn to define and differentiate between the “value” of a college education versus the perceived “quality” of an education. No one would dispute the quality of an education from most of the “elite” or “prestigious” universities in the country, but what overall cost makes that education a good value? If a student’s COA at prestigious Univ A requires the family to borrow $20K/$30K/$40K+ each year to attend but that same student is offered enough merit aid/FA to attend state Univ B for little or no debt, is the true value of the Univ A education really worth it? In the vast majority of cases, I seriously doubt you could make a valid argument that it is.</p>

<p>evitaperon…Your question is a perfect example. Are you saying that graduates from a CC or state school finance program cannot get jobs in finance? If you’re referring to Wall Street type “big bank” or international finance jobs, how many of those jobs are really available? Compare that to the number of graduates from “big name” schools that incur large amounts of debt hoping for that plum job only to find themselves in the cubicle next door to a CC/state U grad who doesn’t have a loan payment of several hundred dollars per month. Who made the wiser financial decision do you think?</p>