Homeschooling and Education

A co-signer is a second party who guarantees to repay the loan and usually becomes involved when the primary borrower has no or a poor credit history.

Students often have few or no credit cards, no car loans and very rarely a home mortgage loan. As a result, they have little or no credit history at all. And, as is the case with many of us in our youth, they may have made some unwise choices. They may have gone beyond what they could repay on a credit card and even been irresponsible about making payments.

That lack of credit history or, worse, actual late payments or defaults can easily put a potential borrower into the high risk category. Loan officers, even in Federal student loans programs, will often look at that with a cautious eye. Student loan applications may be denied, or in borderline cases a higher interesst rate is charged to offset the risk and compensate for higher default rates.

To counteract that lack of credit history or poor record, borrowers can and usually should obtain a co-signer. In the average case that will be one or both parents. Loan officers will look then at the parent’s FICO score, outstanding debt to income ratio, repayment history and other standard factors in deciding whether to grant the loan.

Over the past 40 years, just as with everything else, the cost of education has risen dramatically. Average tuition increases of more than 6% per year are common today. Just as one example, in 1973 the cost of registration at UCLA (University of California, Los Angeles) was $208 per quarter. It is now over $2,300 per quarter.

That ten times increase is not too unusual - many things cost ten times what they did a few decades ago. Income, on the other hand, has risen about three times in the same period, from about $15,000-$30,000 per year to around $39,000-$42,000. The numbers vary by gender, age and more but as a rough guide, the lower range ~3:1 ratio is about right.

Now for the good news. There are more types of financial aid available today to students and parents than there ever has been. Financial aid, as the name suggests, is money that students and their parents get from scholarships, Federal and private student loans are a few other sources to aid students in paying for education.

Once upon a time, students could depend almost entirely on Pell Grants and Stafford Loans to finance education costs, if not complete living expenses. Pell Grants are still given, but they’re need-based and represent a small percentage of the education cost today. Stafford Loans are also need-based, and can range from 25%-40% of the average cost of finance school. Perkins Loans are similar, but reserved for the lowest income families.

Fortunately, PLUS Loans are available, which was not an option 35 years ago. These are loans to parents, not students, to help pay for the student’s education. The interests are average, and there are certain restrictions and fees, but they often form part of the total package.