I am in my 40s, debt free and finally my credit score is excellent. So is it a terrible idea to co-sign my younger sister’s student loan?
Still in her 30s, she is following in our late mother’s footsteps to become a nurse. She recently started a well-respected 14-month accelerated nursing program in New York and should graduate at the end of next summer.
She received some Free Application for Federal Student Aid (FAFSA) funds, but it’s being dispersed over the next few semesters and won’t be enough to cover her next tuition bill this September. Turns out he can’t get any federal scholarships because this isn’t his first degree. So he needs a private loan of $11,000.
We were both caregivers for our mother while she was in the final stages of lung cancer. One good thing about this gutting experience was that my sister found her as a nurse. My sister was 20 at the time and was amazing with mom, who passed away a few years ago. In addition, nursing runs in the family; our mother was a nurse, and we have several cousins and aunts who are nurses.
““We were both caregivers for our mother while she was in the final stages of lung cancer. One good aspect of this gut-wrenching experience was that my sister found her calling as a nurse.“
The younger sister is the baby of the family (there’s a 10-year age difference between us, and I was often like a second mother to her while we were growing up), but she’s not spoiled. She is a worker; something we both get from mom. For example, my sister is keeping costs down while going back to school by living with family and commuting to classes, which is a two-hour round trip each day (sometimes more with traffic) instead of living on campus.
My sister is currently waiting tables on nights and weekends. She is straightening up like in her nursing classes so far. And he recently finished paying off the car he bought years ago, which shows he can commit to paying off debt over the long term.
I have some concerns, though. He still has grad student loan debt; Not sure how much. And I can’t help but worry about how soon she’ll find a job after graduation. He says he can attend his boards right after graduation, and in fact his classes are already preparing him for the exam. But what if it doesn’t?
However, the younger sister is confident that she will find a job right after school in New York, where she can make six figures. (And he notes that New York is projected to face a shortage of nearly 40,000 nurses by 2030.) But what if it doesn’t? Part of their pitch to me is also that once I make my first 12 months of payments on this loan, I will be released as a co-signer.
““My sister is keeping costs down while she goes back to school by living with family and commuting to classes, which is a two-hour round trip every day.”“
So I want to help, especially since our mother and grandparents are dead, and there is no one else in our immediate family who is in a position to co-sign. Also, I know in my heart that this is what our mother would have wanted.
But I have to confess that I worry about how I might be putting myself at risk by co-signing. Does that make me a jerk, or worse, a bad sister? I am also engaged and was about to start planning the wedding. That should probably put those plans on hold. I worry about going from “no debt” to “tens of thousands in student loans and wedding debt” practically overnight.
Big sister stressed out
Dear Stressed Big Sister,
You and your sister are your mother’s daughters.
You support each other, you take your family and financial responsibilities seriously, and you were both there for your mother during her illness. The fact that your sister decided to become a nurse after what they both went through caring for your mother tells me that if there was a sister, one person on this planet who deserved help with her student loans, it’s your sister.
Not only is your sister committed to her studies, and she sees it as a vocation—nurses, teachers, and service workers do a job as important as that of leader of the free world—but she has already demonstrated her commitment by working weekends and nights waiting tables to make her dream come true. I congratulate her on her dedication and determination.
Before giving your answer, exhaust all other avenues first. Talk to the college admissions department about financial aid. Here are some other financial aid options for those enrolled in nursing programs. They include the Edna A. Lauterbach Scholarship Fund, which is available to nurses who plan to pursue careers in home and community care.
I am not ignorant of what your mother would say or do, nor would she want you to say or do, and I think she would be proud that you are considering providing financial and moral support to your younger sister at this time of formation. It’s also an important time for you. You are working hard, saving and planning for your own financial future and a wedding. Is postponing your worst-case scenario wedding a price worth paying?
““Is postponing your wedding, at worst, a price worth paying?”“
As you say, there are risks. And they should be considered along with everything else. From what you say, your sister is someone who has already proven herself to be a reliable and committed student, sister, and daughter. You are taking on the role of parent here, and as such, if you continue to co-sign their loan, you need to do your due diligence as any parent would.
Americans owe $1.7 trillion in student debt. Unlike many other forms of debt, student loans can be very difficult to discharge in bankruptcy. An easier way to approach this dilemma, if you can afford it: Loan your sister the $11,000, avoiding any interest, with a repayment plan over, say, the next two or three years. Just make sure you have a notarized loan agreement. (This column has had many letters about people who borrowed money from family and didn’t pay it back.)
There are many reasons to believe that your sister will be able to pay you back. Anthony Carnevale, director of Georgetown University’s Center on Education and the Workforce, says you’re looking at all the right aspects of this investment because that’s basically what you’re talking about: “an investment in your sister’s future. No investment is without risk, but I would say the risk here is minimized by a number of factors.”
“The main thing is that we are facing a massive shortage of nurses. This has been a problem for years. As the baby boomers retire, we will need more nurses to replace them,” she says. “And we will actually need more than we need now, because there are so many baby boomers. That shortage has been exacerbated by the pandemic, as more nurses have left or are considering leaving the field as a result of the pressures that COVID-19 has placed on our health care system, which includes existing shortages.”
Growth of health services
Carnevale cites the following from an upcoming CEW report: “The growing need for care will drive the health care workforce to grow faster than any other. Between 2021 and 2031, employment in this industry is projected to increase by 20%, or more than 4.2 million net new jobs. This is larger than any other industry by a margin of more than 1 million jobs.”
Cosigners “are on the hook for loans that pay for their children’s education, either by taking out PLUS loans (federal money borrowed by parents) or cosigning other debt from private lenders,” according to AARP, the seniors’ advocacy group. “About 25% of borrowers age 50 and older make loan payments on private student loans because the student defaulted.”
Also, while lenders often advertise that cosigners can be easily released from their obligation, the Consumer Financial Protection Bureau found in 2015 that 90 percent of cosigners who applied to be released from their loan were turned down.
Your own credit score will also be affected, even in the short term, if you agree to co-sign, and if/when you want to buy a home with your partner, a bank will consider that debt. My golden rule: only lend, invest or gamble what you can afford to pay. Worst case scenario, are you in a position to pay $11,000 if your sister doesn’t? If the answer is yes, this supports the case for helping your sister.
““My golden rule: only lend, invest or gamble what you can afford to pay.”“
Another necessary question: Can you and your sister afford to take out a student loan? Your sister should consider a variety of expenses: rent, food, leisure and entertainment, etc. and decide what percentage of your monthly income, after taxes, you can afford to pay off as a student loan, and also settle for a percentage you feel comfortable with.
For others reading this column who are considering co-signing a loan for a child who has not yet completed a degree, I would suggest a Federal Pell Grant, which is available to students who “demonstrate exceptional financial need and have not earned a bachelor’s, graduate or professional degree,” and do not need to be repaid except in certain circumstances.
Word of warning: Federal loans, if they’re an option, do have benefits that private student lenders typically don’t offer, says the Consumer Financial Protection Bureau: “These benefits could include lower interest rates, income-based repayment plans, and possible loan forgiveness for people who choose to work for a certain period of time in government or for certain nonprofit organizations at a low-income school or teach.”
There are risks, significant risks. The only red flag in your letter is the amount of student debt your sister currently has. This is a great question, and one that should not be overlooked. If you are considering cosigning your sister’s loan and/or lending her a sum of money to pay for the remainder of her course, you must have full financial transparency to assess her ability to repay.
Readers write to me with all kinds of dilemmas.
By emailing your questions, you agree to have them posted anonymously on MarketWatch. By submitting your story to Dow Jones & Co., the publisher of MarketWatch, you understand and agree that we may use your story, or versions thereof, in all media and platforms, including through third parties..
The Moneyist regrets not being able to answer the questions individually.
More from Quentin Fottrell:
I went on a date with a great guy. I didn’t drink, but their wine added $36 to our bill. We split the check evenly. Should I have spoken?
“I’m Living Paycheck to Paycheck and I’m Burnt Out’: My Fiance Said He’d Pay Half the Mortgage. Guess What Happened Next?
“We live in purgatory”: My wife has a multi-million dollar trust fund, but my mother-in-law controls it. We make $400,000 and spend beyond our means.