What are the risks of signing as guardian for your child’s student loan?

By Isabelle Coetzee

As your child embarks on their journey towards higher education, they will likely be faced with a funding shortfall. This may include the cost of their studies, as well as additional living expenses.

In order to assist them, you may consider signing as their guardian for a student loan. We have a look at how you can fulfil this role, as well as the risks of being involved.

Tip: To be approved for a loan you need a good credit score. Click here to see yours for free right now.

Who can be a guardian for a student loan?

According to Ernest Zamisa, financial adviser at Momentum, signing surety on a student loan can be done by anyone who has an interest in the academic achievement of the student, and meets the qualifying requirements stated by the loan provider.

“The guardian, who provides surety or signs for the loan, has to meet the general qualifying criteria in their own capacity, for securing a loan. They may also need to prove their validity as a guardian of the student,” says Zamisa.

You will be able to qualify as a guardian for a student loan if you have a good credit score, receive a regular income, and have additional funds that can be dedicated towards the loan.

Ideally, you won’t have to contribute to the repayments, because these will be your child’s responsibility. However, you need to prove that you can pay if your child defaults on the loan.

READ MORE: How to save for your child’s tertiary education

Be prepared for the risks involved

The difficulty of signing as a guardian comes in when graduates default on their student loans.

In this situation, the guardian becomes responsible for servicing the outstanding amount. If this happens to you and you’re unprepared for this financial burden, it may cripple you.

Zamisa suggests having an emergency fund set up to help prepare you for the worst. If your child defaults, you will then at least have some time to adjust your current expenditure, or find additional streams of income to cover these costs.

Alternatively, an emergency fund could also act as a temporary buffer until your child is able to meet their payments again.

“I cannot emphasize enough the importance of having a financial planner or expert to advise further on these matters to prepare you for any eventuality,” says Zamisa.

“In order to improve your readiness for guardianship, you should start planning for it early on, live within your means, and weigh your pros and cons. Most importantly, don’t act out of desperation or sign a guardianship without being certain you can handle the consequences,” he recommends.

One way to improve your chances of being approved as a guardian is to grow your credit score.

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