If you're one of the millions of parents sending a son or daughter to college next year, you're worried about financial aid'and you should be. There's a hidden debt trap that can hit you, not just your student.
Everyone hears about, student loan scams,, but the bigger danger is completely legal private student loans that can blindside parents.
Roughly 92 percent of all student debt is Direct loans from the federal government (no co-signer ever required). The other nearly 8 percent comes from private lenders'SoFi, Discover, College Ave, Sallie Mae, credit unions, etc.
More than 90 percent of private undergraduate loans require a co-signer because students have little or no credit history. And this is the trap.
Here's how it works:
Your student decides a semester abroad in Greece ($20,000) sounds great. She fills out an online application with a private lender, types in Dad's name, Social Security number, and income, then e-signs his name on the co-signer line. This is fraud, but the word is out: no one at the loan company is going to check with Dad. No phone call, no verification, no notarized signature is required. If Dad has good credit, the loan is often approved in minutes. Dad now has a $20,000 loan he knows nothing about and his daughter is off to Greece. Or maybe she just doesn't enroll and plays around all semester. No one checks and no one asks.
Forgery and unauthorized co-signing happen thousands of times a year. Parents typically discover the debt only when debt collectors call'or when their own credit score suddenly tanks.
What you can do right now
– Check your credit report monthly at AnnualCreditReport.com.
– Freeze your credit at all three bureaus (free and takes 5 minutes online), this blocks new accounts in your name.
– If fraud hits: File an identity-theft police report (tell the officer it's for documentation only'not prosecution), submit it to the lender, credit bureaus, FTC (IdentityTheft.gov), and CFPB. Most lenders will remove you as co-signer within 30'60 days, and the matter almost never becomes criminal.