Beware of making commitments you can’t afford

I’m talking back and forth with a couple I’ve known for some years, who recently found their lives turned upside down by one of their children’s study loans.  They had signed as guarantors of the loans, because the university’s financial advisor had assured them that it was “just a formality”, that “everybody does it”, and that if they didn’t step up to their plate, their child “would not get the high-quality education she deserves”.

How many of you have endured the same pitches from your kids’ universities and colleges?  Sound familiar?

Well, in this case, reality bit.  Hard.  Their daughter was involved in a car accident, resulting in permanent partial disability.  She’s only halfway through her studies, but will never be able to complete them.  She’s no longer capable of working in her chosen field, and the permanent effects of her injuries will restrict the number of alternatives available to her (and her future income, too).  She may be dependent on her parents for at least a roof over her head, if not physical assistance with the daily necessities of living (like taking a bath, or getting dressed) for the foreseeable future.

Her parents are good people.  They’re more than willing to step up to the plate and help meet their daughter’s needs.  However, just as they began to pick up the pieces of her former life, along came the bills from her student loan providers.  She’s on the hook – or, rather, since she’s no longer earning, her parents are on the hook – for over $60,000, and repayments start at once.  Putting all her needs together, they’ll need to find at least an extra $1,000 per month – but they don’t have it.  They’ve asked her siblings to help, but both of them are just starting out in life, not earning great salaries, and they have their own needs – including their own student loans.  They probably won’t be able to come up with much.

I’m very sorry for all those involved, but they basically brought this upon themselves.  The daughter wanted an education she could only afford by taking out student loans.  That was the first bad choice.  If she’d chosen a more affordable field of study, or worked to save enough money for the field she wanted before entering that program, she wouldn’t be hurting financially right now.  If her parents hadn’t guaranteed her student loans, they wouldn’t be on the hook for her debts now.  All three of them are stuck with the consequences of their unwise decisions.

Moral of the story:  be very cautious about standing surety for anyone else’s financial liabilities.  No matter how remote the possibility, there’s always the chance you might find yourself on the hook for them.

Peter

14 comments

  1. I co-signed a loan for my son’s truck once. I made sure that a) he could actually afford it, b) i had enough extra income to make payments, and c) he would sell the truck if worse came to worse. It worked out ok and he paid it off in full. The only downside is that with my name on the paperwork, i get constant calls about extended warranties.

    Student loans have no collateral. That’s the bad part. You can’t just sell a partial education back to the school and cancel the loan.

    Both my kids went to community colleges and local universities where they could live at home and get discounted tuition. I paid out of pocket, no loans. Difficult but once graduated they are free and clear. I can’t see how any kid would want to start out underwater.

  2. Hey Peter;

    The debt was the biggest reason my son doesn’t want to go to college, he wants to get a trade instead. I am proud of him for thinking of that instead of trying to get on the student loan merry go round like a lot of his peers. I wouldn’t co-sign on a student loan anyway, there are too many variables and I don’t want to be owning for someone else.

  3. The Progressive Left sold us on the idea of ‘Everybody should have a college degree’ in large part because they needed the expanded University system asa a place to stash some of their more generally unemployable activists. The Baby Boom greatly expanded Higher Education, and when it passed the Intellectual Left either had to see the idea that degrees were a lot more vital than they are or accept that some of their number would actually have to work for a living.

    But they sold it to our society as a whole. And society as a whole has been pushing it relentlessly for decades. And so that poor shmoo who wanted to be a puppeteer went $30k din debt to a College instead of hitchhiking to LA and getting a job fetching coffee for Jim Henson Studios. You remember the moron; he was one of the big takeaways from the early Occupy Wall Street protests. Everybody mocked him, but I felt a sneaking sympathy for the silly sonofabitch. Sure, he was blaming the wrong people, but he had been screwed by the numbers for doing exactly what society told him to do; figure out what his passion was a, and then get a degree in it.

    *sigh*

  4. Am proud my son is actually listening to me. Yesterday we went to a trade school to see about their CNC Machining and Manufacturing Technology course. He wasn’t to enthused about going, but thanked me for taking him after. He has decided to enroll, it’s a growth field here in Indiana, and he can relocate nearly anywhere in the country once he graduates and gets some experience.

    We are going to meet with their financial aid office today but the 529 account my ex-wife and I started for him will cover all the costs if he’s not eligible for grants or scholarships. NO LOANS.

    If he does well, completes the course and gets his certifications, he’ll be so far ahead of the game.

  5. If a commercial lender will not grant a loan to someone without a co-signer why in hell would I?
    They’re either too young to have established credit, or their financial habits are such that their credit score is tanked.
    Sympathies for the young, but not a bit for anyone who blew through their own credit and now wants to piggy back on mine.
    Had extended family that tried that on me one time. Sister’s boy had grand and glorious plans to acquire a low wattage radio station license and become famous. No lender would touch him of course, he’d dabbled in radio but had no credentials or work history. Sis came to me and demanded that I must help my nephew, it was my duty. Reminded me as she always did whenever she hit me up for a “loan” that somehow never got repaid, blood is thicker than water.
    This time my response was “that’s true, but BS is thicker than blood, the answer is still no.”
    She did not speak to me for the next six months, a blessing in and of itself.
    My granddaughter is starting at culinary school, in state community college, waitressing on the side, with help from her parents, me and her other living grandparent. Going for a baking and pastry certificate and in all likelihood a degree in hospitality management. And at the end barring any major hiccough will graduate debt free with a set of skills that will transfer anywhere in the world.
    Her brother is two years behind her and has plans for trade school for certifications on welding and construction.
    Sometimes I almost think I may have brought their daddy up right.

  6. Student loans never go away, I’ve read about people’s social security being attached for co-signing a student loan. This was one hell of boon for the banking industry!
    Tell your friends to not miss the court dates when they get sued by the bank (they don’t have enough money, something HAS to skipped), skipping court leads to debtors prison.

    Did you say she should have saved up the $60k before going to college? The education industry is powerful & wealthy today, most American young are trained by them starting at a very young age to follow this path.

    It’s sad to see another family indentured to bankers for close enough to forever…

  7. @Uncle Lar,

    Heads up about your granddaughter; I have known several people with various culinary degrees. All of them flamed out pretty quickly in the restaurant business, and none of them were OWNERS, I gather owners have an even hight flameout rate.

    Baking and pastry may be different. I hope so, for her sake.

  8. Keith Indy. Also get your son connected with some old-school machinists. Being able to use non-CNC machinery like lathes, mills and other old-school equipment will give him a leg up in the machinists’ world.

    But, yeah, predatory student loans. Used to be one of the parts of a gov-backed student loan back in the day was forgiveness of the loan in case of inability to work (disability) or death.

    But then Big Gov did to student loans what Fannie Mae and Freddy Mac did to sub-prime mortgages.

    I hope the couple consult a good loan lawyer and see if they can get any debt forgiveness or modification (in their favor, of course.)

  9. Thanks for the input on granddaughter.
    Yep, food service can be a hard life, but her extended family has ties to successful cooks and restaurant owners.
    Her own present goal is to someday own her very own food truck.
    My council to her is to split her degree between the culinary skills and the basics of a business degree.
    Two biggest stumbling blocks to success in food service are the rampant drug abuse and startups with an undercapitalized and incomplete business plan.

  10. Two biggest stumbling blocks to success in food service are the rampant drug abuse and startups with an undercapitalized and incomplete business plan.

    The two biggest stumbling blocks to success in ( insert any business here ) are being undercapitalized and having an incomplete ( inadequate ) business plan.

  11. People disabled for at least three years can get debt relief for Federal loans. Have them contact whatever federal agency helped setup the loans and ask for permanent relief due to long term disability. My disabled son did this and it helped immensely.

  12. I can certainly sympathize with them, that is a tough and obviously unexpected situation. And given that it’s not a “deadbeat child” situation but rather a tragedy, it’s especially sad to hear of their misfortune.

    My oldest son starts high school this week. I’ve had multiple conversations with him about his post-high school opportunities, and the biggest thing I’m trying to drill into his brain right now is to avoid debt as much as possible. In our area, the county will pay for students who have just graduated high school to spend 4 semesters at the county community college. I’ve encouraged him (barring a full ride scholarship at a university) that if he wants to continue post high school education, he should utilize this option. He can either get an associates degree in a field that can get him a job, or he can get his gen-ed classes done before transferring to a university for a couple years. I will not be co-signing for any debt for any of my children.

Leave a Reply

Your email address will not be published. Required fields are marked *