Can there be circumstances when cosigning a loan will be all right?
Question:
Hi there.
I'm writing to you because I'm at a fairly confusing time in my life. I'm 25 and attending college. In December I was divorced after less than one year in marriage. He left, divorcing me and citing, "irreconcilable differences." God has always been faithful to me and rescued me from potentially disastrous situations. Luckily the quality of my ex's character was revealed before we had any shared investments or children. God has always provided for me and been with me through everything. Because of the divorce, school, and expenses incurred in the meantime (rent, bills, prescriptions, educational expenses, etc.), the extra money from my federal government loans is rapidly running out. I do not make enough at my job to make enough to survive, and I cannot work more because I have class and studying. I cannot take a break from school because the future of my major at school is uncertain (I'm am to graduate in May of '07).
My parents do not cosign under any circumstances, and I am not bitter; I know they love God and are wise. They also live on a fixed budget and need to make sound decisions, so there is no bitterness or hostility there. However, I really don't know how I'm going to make it. I've done so much research on cosigning because I was thinking about asking my sister. We're close, it wouldn't be weird, well, too weird. Asking feels odd, but I'm really not sure I have many options. When I worked as a nanny a few years ago, my employer cosigned a loan for my car (they're Christians), and I made my payments and paid off the car in just a couple years. I would never take advantage of someone, I'm just not like that.
Are there certain exceptions to cosigning? Is it okay sometimes? I know God is fair and just, so at times I try to not be legalistic. I'd like you to pray over this and really tell me what you think I should do. I know God doesn't want to ruin my life, so I try to accept all things, no matter how hard they are to grasp. I'd be asking for $10,000 to $15,000 and my major has almost 100% job placement upon graduation (the reason for the possible ending of the major is due to lack of enrollment in it, and unavailability of professors). I have a 4.0 GPA and am very active in the department. I'm finally in school for the right reasons; not to find a boy, not for parties, or to be with friends. I really want a degree, and I really want to follow God's will because my life is to be lived for him, not me.
Please help me figure this out. Thank you.
Answer:
Sometimes we don't see things clearly because we fixate on one "obvious" solution and ignore or discount all others. Let's put things back into better perspective.
First, let's tackle the issue of taking out loans. Any debt means you are attempting to live beyond what you can currently afford. In our current society, debt is acceptable, but it hasn't always been the case. Not that long ago, people only went into debt when they were absolutely desperate. The attitude changed gradually over many centuries. It became acceptable to use debt for large purchases, such as a home or land, but those incurring it would work as hard as they could to pay it off quickly. Gradually the time frame extended. People kept debt on homes for longer and longer times. Eventually, 15-year mortgages became commonplace, then 30-year mortgages, and recently there is talk of extending it even further. A whole industry has developed in selling you debt. Where before it was only used for large purchases, now it is used for day-to-day transactions. Why is debt so widespread? Because firms make a lot of money from the interest charged. Debt is the only product where the customers come to the firms begging for the privilege of purchasing their products.
In Romans 13, Paul talks about governments and our obligations to them. They have a right to collect taxes in order to operate and Christians have an obligation to pay their taxes. But in this discussion, Paul generalizes the principles he is discussing to other situations. "Owe no one anything except to love one another, for he who loves another has fulfilled the law" (Romans 13:8). In general, it is best to not to incur debt.
Why? Well, think about it in this way. If you borrowed money, using your sister's ability to pay your debt as an incentive to gain the loan, what happens if you should die before the debt is repaid? Who will be harmed by your untimely demise? "The wicked borrows and does not repay, but the righteous shows mercy and gives" (Psalm 37:21). You see, if you can't pay the lender is going to come after your sister. Not only will she be dealing with the grief of your death, but she will also suddenly have a large debt to pay off.
Usually, we borrow money figuring that at our present income level, we can make the payments. In your case, you are banking on an expected improvement in income. You claim that you have a certain guarantee of a better paying job, but how can you be? God tells us that the future is not guaranteed. "Come now, you who say, "Today or tomorrow we will go to such and such a city, spend a year there, buy and sell, and make a profit"; whereas you do not know what will happen tomorrow. For what is your life? It is even a vapor that appears for a little time and then vanishes away" (James 4:13-14). What happens if the market for your job dries up? What happens if there is an economic collapse? What happens if you employer does hire you but shortly turns around and lays you off? "Will not all these take up a proverb against him, and a taunting riddle against him, and say, 'Woe to him who increases what is not his-how long? And to him who loads himself with many pledges'? Will not your creditors rise up suddenly? Will they not awaken who oppress you? And you will become their booty" (Habakkuk 2:6-7).
I'm a bit concerned because you indicate that you are living beyond your means. Your expenses exceed your income. The loan doesn't solve the problem; it delays when it becomes critical. You see, when you take on a debt, you are borrowing against your future. Hence, in the future, you will have less money in your pocket. Or another way of looking at it, by incurring debt today, you are lowering your standard of living in the future.
The core of your question, though, is whether you should ask someone else to cosign your debt. Few people really understand what happens when a person cosigns on a loan. "A man devoid of understanding shakes hands in a pledge, and becomes surety for his friend" (Proverbs 17:18). To put it bluntly, the Scriptures say you have to be stupid to cosign a loan. Why? The cosigner is completely obligated for the payment of the loan, yet receives no actual benefit from the loan. How smart is that? When you ask your sister to cosign your loan, who gets the education? But who is taking the risk if you don't make the payments? "Do not be one of those who shakes hands in a pledge, one of those who is surety for debts; if you have nothing with which to pay, why should he take away your bed from under you?" (Proverbs 22:26-27). If you can't afford it, don't buy it. If your friend can't afford it, why should you put your personal possessions at risk?
You asked if there might be an exception, and there is a minor one. "And if you lend to those from whom you hope to receive back, what credit is that to you? For even sinners lend to sinners to receive as much back. But love your enemies, do good, and lend, hoping for nothing in return; and your reward will be great, and you will be sons of the Most High. For He is kind to the unthankful and evil" (Luke 6:34-35). We ought to be generous with what the Lord has blessed us, but it doesn't make sense to give away what we don't have. A Christian should only lend what he can do without. In cosigning, you are loaning the other person money; money for which you will receive no personal benefit in the use and no interest from its repayment. The cosigner hopes that the borrower will repay that loan without his involvement, but if something goes wrong (and it can) then the cosigner will be shelling out money. It only makes sense if it is money the cosigner can live without having.
Your parents are wise. They know they can't afford it if something happened to you. I doubt your sister is that financially well-off either. But think of strain you will be putting on your relationship with your sister. You are asking her to do something that God said is dumb.
You went to long lengths to frame the question as if this was your only option. The reality is that it is not. It is just that other options will take a lot of work. You are putting yourself through school via loans and you are exceeding the living expenses allowed by those loans. Have you applied for grants, which don't have to be paid back? Have you applied for every scholarship known to mankind? If you are getting a 4.0 GPA you should be qualified for several. You mentioned not making enough at your current job, so how many applications have you put in for better-paying jobs? Are you working enough hours? Can you work more hours and cut your school hours a bit to get things back in balance? It might stretch out your graduation date, but at least you won't be that much further behind.
Dave Ramsey's financial counselors. I'm not connected with them in any way, but I have found Dave's talk show advice to sound and matching the Scriptures. You need a budget and these people are able to get you going in the right direction.
