By Allie Bidwell, Communications Staff

Despite the fact that the majority of private student loans require a cosigner – often the borrower’s parent – many do not understand the risks involved and feel they have been negatively impacted as a result, according to a new survey.

The survey, conducted by LendEDU, found that about one-third of the 500 parent cosigners surveyed said they did not understand the risks associated with cosigning on a private student loan. More than half said they believe their credit scores have been negatively impacted by cosigning, and about one-third said cosigning has hurt their ability to qualify for a mortgage, auto loan, or other type of financing. Still, nearly half (45 percent) said they did not consider using a Parent PLUS loan as an alternative.

“Too often, parents make the hasty decision to become a cosigner without fully understanding the risks,” the survey said. “Considering the long term financial liability that comes with cosigning on a student loan, a third of parents answering ‘no’ is quite concerning.”

As a cosigner, the parent can be affected by late payments made by the student borrower, something that’s not uncommon, according to the survey. More than one-third of parents said their children have made a late payment on a cosigned loan.

The survey also points out that refinancing may be a more beneficial option for the parent cosigners, who would be released if their children refinanced their loans. Alternatively, parents can also ask the lender to release them. Still, 59 percent of the respondents said their children had not considered refinancing, and about 70 percent said their children had not asked for a cosigner release.

“Parents may think that by cosigning they are acting as a safety net in case their child cannot repay the loan,” the survey said. “In reality, however, the parent and child are equal partners in repaying the loan.”

Publication Date: 3/8/2017

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