Seeing their kids off to college is a dream many parents share, but co-signing the student loan to get them there can have nightmarish consequences.
These days, many students need help to cover the skyrocketing costs of college. At public four-year schools, costs for the 2015–16 school year rose to $19,548 from the $16,178 price tag five years ago, according to the College Board. Tuition plus room and board at four-year private universities was much, much higher: $43,921 on average.
In turn, student debt has reached record proportions, with $1.3 trillion in student loans outstanding.
While private student loans make up only a portion of that, they are often used by borrowers who also have federal loans. Generally, private student loans have higher variable interest rates, lack flexible repayment options, and most require a cosigner.
That's when parents step in and put their own financial stability and retirement at risk in the process.
"Parents and grandparents put their financial futures on the line by co-signing private student loans to help family members achieve the dream of higher education," said Richard Cordray, director of the Consumer Financial Protection Bureau, in a recent statement.