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4 Signs You Shouldn't Cosign That Student Loan

If you are considering co-signing a loan that allows your child to attend a higher-priced school, these four warning signs should make you think twice.

1. Poor academics in high school

Because some states now offer lottery-funded scholarship awards for students who meet certain academic requirements, admissions at many less-expensive state colleges have gotten much more competitive. But if your student is ineligible because he or she doesn't meet those requirements, opting for a pricier private school that accepts lower academic standards may be a poor choice.

"Community college is the way to improve academics for students who don't meet four-year state college requirements," says Cruze.

2. Questionable future earnings

Kantrowitz offers this simple formula for determining how long it will take students to pay off their loans: If total student loan debt at graduation is less than the potential annual starting salary, loan repayment will be possible in 10 years or less. For larger loan amounts, repayment times can be significantly longer.

If the career's potential salary pales in comparison to the extra educational costs, borrowing more money is a questionable option.

3. The need to consider less-attractive loans

Direct subsidized student loans from the U.S Department of Education come with low interest rates and can often cover most in-state college costs, particularly if the student is able to secure other grants or scholarships. But if your child's educational bills force you to consider additional loans that have less-attractive terms than a direct subsidized loan, think carefully before choosing this route.

"Students never have to borrow all they are offered, especially if parents can pay some costs," says Kantrowitz. If you are forced to consider the federal Parent PLUS loan program or cosigning for a direct unsubsidized or private student loan at higher rates, the additional costs these loans impose may not be worth it.

4. A lack of certainty

A four-year college is not for everyone. Poor grades or a decision to drop out or transfer schools may result in a loss of paid-for credits, which can substantially increase college costs, says Kantrowitz. Some students are more inclined toward career paths that favor a technical certificate or two-year associate degree.

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