Should You Co-Sign a Student Loan?

Financing a college education is tough business these days, so any way to get a loan is normally viewed as a positive step. But co-signing a student loan is really pushing one’s luck. The good news is Congress is taking steps to crystallize what obligations a co-signer takes on with these loans.

The biggest risk is that something bad could happen to the primary beneficiary of the student loan, and you’ll be left with the bill. If the primary borrower can’t repay the loan, the co-signer will be held responsible.

Recently, a 25-year-old New Jersey man passed away. He owed $85,000 on a student loan, which both his parents had co-signed. It wasn’t long after the death that the private lender went after the parents for money.

The parents balked, saying the lender didn’t make it clear they’d be responsible if their son couldn’t repay his loan.

U.S. Rep. John Adler (D-N.J.) got wind of the situation and subsequently introduced a bill in Congress — the Christopher Bryski Student Loan Protection Act, named for the student who passed away — forcing banks and other private student loan lenders to “clearly and concisely” explain who is responsible for loan repayments in such an event.

Here’s a summary of the bill:

• Amends the Truth in Lending Act to require private educational lenders and institutions of higher education (IHEs) providing student loan counseling to discuss the benefits of advanced directives with the signers and cosigners of student loans.
• Requires lenders of private educational loans, for which cosigners are jointly held liable, to clearly and concisely define the terms of cosigners' obligations regarding such loans.
• Directs lenders of private educational loans to inform signers and cosigners of the benefits to purchasing credit insurance. Also prohibits such lenders from conditioning or varying the terms of such loans on the basis of whether or not credit insurance is purchased.
• Directs the Board of Governors of the Federal Reserve System to set standards for determining when a private educational loan signer or co-signer has died, or become incapacitated or disabled.