‘She’s currently waiting tables on nights and weekends’: My sister asked me to cosign her $11,000 student loan. Do I say yes?

Dear Quentin, 

I’m in my early 40s, out of debt and my credit score is finally excellent. So is it a terrible idea to cosign my little sister’s student loan? 

Still in her early 30s, she’s 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 funds from the Free Application for Federal Student Aid (FAFSA), but it’s being dispersed across the next few semesters, and won’t be enough to meet her next tuition bill this September. She can’t get any federal grants, turns out, because this isn’t her first degree. So she needs an $11,000 private loan.

We were both caregivers for our mother while she was in the late stages of lung cancer. One silver lining of this gutting experience was that my sister found her calling as a nurse. My sister was in her 20s at the time, and she was incredible with mom, who passed away several years ago. Plus, nursing runs in the family; our mom 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 late stages of lung cancer. One silver lining of this gutting experience was that my sister found her calling as a nurse.’

Little sis is the baby of the family (there’s a 10-year age gap between us, and I was often like a second mother to her while we were growing up), but she’s not spoiled. She’s a hard worker; something we both get from mom. For example, my sister is trimming expenses while going back to school by living with family and commuting to classes, which is a two-hour round-trip drive each day (sometimes more with traffic) instead of living on campus. 

My sister is currently waiting tables on nights and weekends. She’s making straight As in her nursing classes so far. And she just recently finished paying off the car that she bought years ago, which shows she can be committed to paying off long-term debt.

I have some concerns, though. She still has undergraduate student-loan debt; I’m not sure how much. And I can’t help worrying about how soon she’ll find work after she graduates. She says that she can sit for her boards right after graduation, and in fact, her classes are already preparing her for the exam. But, what happens if she doesn’t pass? 

Little sis is confident that she will find a job right out of school in New York, however, where she can pull in six figures. (And she points out that New York is projected to face a shortage of almost 40,000 nurses by 2030.) But what if she doesn’t? Part of her pitch to me, too, is that once she makes her first 12 months of payments on this loan, I’ll be released as the cosigner. 

‘My sister is trimming expenses while going back to school by living with family and commuting to classes, which is a two-hour round-trip drive each day.’

So I want to help — especially since our mom and grandparents have passed away, and there’s no one else in our immediate family who’s in the position to co-sign. Plus, I know in my heart that this is what our mother would have wanted.  

But I have to confess that I’m worried about how I might be putting myself at risk by co-signing. Does that make me a jerk, or worse – a bad sister? I’m also engaged, and I was about to start wedding planning. This should probably put those plans on hold. I’m worried about going from “no debt” to “tens of thousands in student loan and wedding debt” practically overnight.

Stressed Big Sister

Dear Stressed Big Sister,

You and your sister are your mother’s daughters. 

You support each other, you take your familial 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 you both went through taking care of your mother tells me that if there was one sister, one person on this planet who deserved help with her student loans, it’s your sister. 

Your sister is not only committed to her studies, and sees it as a vocation — nurses and teachers and service workers do a job that is as important as the leader of the free world — but she has already shown her commitment by working weekends and nights waiting tables to make sure she can turn her dream into a reality. I applaud her for her dedication and determination.

Before you give your answer, exhaust all other avenues first. Talk to the college admissions department about financial aid. Here are some other options for financial aid for those enrolled in nursing programs. They include the Edna A. Lauterbach Scholarship Fund, which is available for nurses who are planning to continue their career in home and community-based care. 

I’m not unaware of what your mother would say or do, or want you to say or do, and I think she would be proud that you are planning on giving financial and moral support to your younger sister at this formative time. It’s an important time for you too. You’re working hard, and saving, and planning your own financial future, and a wedding. Is delaying your wedding, in a worst-case scenario, a price worth paying?

‘Is delaying your wedding, in a worst-case scenario, a price worth paying?’

As you point out, there are risks. And they should be taken into consideration 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 go ahead with co-signing her 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. A simpler way of tackling this dilemma, if you can afford it: lend your sister the $11,000, avoiding any interest rate, with a payment 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 did not pay it back.)

There are many reasons to believe your sister will be able to repay you. Anthony Carnevale, director Georgetown University’s Center on Education and the Workforce, says you are considering 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’d say the risk here is minimized by a number of factors.”

“The primary one being we are facing a massive shortage in nurses. This has been an issue for years. As baby boomers retire, we’ll need more nurses to replace them,” he says. “And we’ll actually need more than we do now, because there are so many baby boomers. That shortage has been exacerbated by the pandemic, because more nurses left or are considering leaving the field as a result of the pressures COVID-19 placed on our healthcare system, which includes existing shortages.”

Growth in healthcare services

Carnevale quotes the following from a forthcoming CEW report: “The burgeoning need for care will propel the healthcare services 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. That is greater 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 for other debt from private lenders,” according to AARP, the advocacy group for older people. “About 25% of borrowers age 50 or older make loan payments on private student loans because the student failed to do so.”

In addition, though lenders often advertise that co-signers can be easily released from their obligation, the Consumer Financial Protection Bureau found in 2015 that 90% of co-signers who applied to be released from the loan were rejected. 

Your own credit score will also likely be impacted, even in the short term, if you agree to cosign, and if/when you want to buy a home with your partner, a bank will take this debt into account. My golden rule: only lend, invest or gamble what you can afford to repay. In a worst-case scenario, are you in a position to repay $11,000 if your sister fails to do so? If the answer is yes, that supports the case to help your sister. 

‘My golden rule: only lend, invest or gamble what you can afford to repay.’

Another necessary question: Can you and your sister afford to take out a student loan? Your sister should factor in a variety of expenses: rent, food, leisure and entertainment etc. and decide what percentage of her monthly income — after tax — she can afford to repay as a student loan, and also settle on a percentage that she/you are comfortable with.

For others reading this column who are considering cosigning a loan for a child who has not already completed a degree, I would suggest a Federal Pell Grant, which is available to students who “display exceptional financial need and have not earned a bachelor’s, graduate, or professional degree,” and they do not need to be repaid, except under certain circumstances. 

Word of warning: Federal loans, if they are an option, do have benefits private student lenders typically don’t offer, the Consumer Financial Protection Bureau says: “These benefits could include lower interest rates, repayment plans based on income, and possible loan forgiveness for people who choose to work for a certain amount of time in government or for certain not-for-profit organizations or teach in a low-income school.”

There are risks, significant risks. The one red flag in your letter is the amount of student debt your sister currently has. This is a big question, and one that should not be overlooked. If you are considering cosigning on your sister’s loan and/or lending her a sum of money to tide her over the remainder of her course, you need to have full financial transparency to assess her ability to repay.

Readers write to me with all sorts of dilemmas. 

By emailing your questions, you agree to have them published 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 of it, in all media and platforms, including via third parties.

The Moneyist regrets he cannot reply to questions individually.

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