Am I Responsible for my Child’s Student Loans?

College expenses can add up quickly. Counting tuition, room and board, public college students can expect to pay $19,189 a year, while students at private colleges average about $39,529 a year.

Many students need help to cover college costs. And sometimes parents step in to help. But before you agree to help, you should understand the options and responsibilities — especially when it comes to student loan repayment. Let’s take a look at the types of loans available, how they work and what scenarios would make you liable for making payments.

Federal Perkins loans and Federal Stafford loans

These federally backed and administered loans usually come with a low interest rate, making them attractive for students and parents. When the time comes to start making payments, only the student is obligated to repay these loans — not the parents. In fact, there’s no co-signer. If the student defaults on a federal student loan, it will affect the student’s credit and won’t be reported on the parent’s credit history.

Federal Parent Direct PLUS loans

Parents of eligible undergraduates can apply for the Parent Direct PLUS program to cover the remaining costs after other financial aid. The student just needs to complete a Free Application for Federal Student Aid (FAFSA). A parent PLUS loan can’t be transferred to the child. In other words, the parent borrower is legally responsible for the loan.

Some families will create a side agreement for repayment. But remember, under the PLUS program, any lower payment, forgiveness or deferment options will be based exclusively on the parent borrower’s situation — even if it’s the student who makes payments back to the parents.

Co-signing a private loan

Most private student loans require co-signers — such as a parent or guardian. A co-signer helps in many ways — mainly by increasing the chances of getting the loan and by scoring a lower interest rate. But the co-signer is also responsible if the student is unable to repay the loan. It will also go on the co-signer’s record and count toward student loan debt, which means it can also affect their credit score.

“Co-signing is essentially identical to taking on the loan itself; if it's not paid, your credit will be ruined and you can get hammered by debt collectors,” says Rohit Chopra, a senior fellow at the Center for American Progress.

Even if the payments are made on time, the co-signed loan will still show up as an obligation on the co-signer’s credit history.

If you struggle to repay a loan

If you find yourself falling behind on a loan, it can dent your credit score – as loans considered delinquent are typically reported to three major credit reporting agencies. If you fall further behind, your loan may go into default and debt collectors could start contacting you. Before you get to that point, contact your lender, explain your situation and ask about loan repayment options or the potential for loan:

• Refinancing
• Deferment
• Consolidation
• Forgiveness

Do your homework

Using student loans for a child’s education may be the right choice for your family. Make sure you find out who’s responsible for what —– and when. And check out this student loan payment calculator to understand your costs before making a loan commitment.