Co-signing may lead to debt

When a child decides to attend college, many parents unquestioningly co-sign on student loans, choosing to consider the benefits of receiving an education from a big-name school rather than acknowledging the possibility that down the line the graduate may not be able to pay off the loan. Business Insider explained the process, saying that a co-signer's job is to financially vouch for someone who has no real credit history, guaranteeing that the loan will be paid off. The loan then becomes a factor in both parties' credit scores and, should it default, both the borrower and the co-signer will be affected. The Federal Trade Commission claims that as many as 3 out of 4 co-signers repay an initial loan. The source also noted that if the borrower defaults on a loan, the co-signer is often contacted by debt collection agencies, who have no obligation to communicate with the borrower. It could also block the co-signer from taking out their own loans, as lenders may consider their co-signed loan to be an outstanding obligation. In addition to the financial issues co-signing could lead to, Business Insider suggested that parents should not co-sign for their children because it teaches them that their parents will always be there to fall back on for finances.