Graduating from college with student loan debt obviously isn’t any fun for the graduates. It can also be a headache for their parents.

Parents co-signing a student loan for their children can make it easier for the loan to be approved and can reduce the interest rate. But it can leave parents with a lower credit score, make qualifying for a mortgage or other loan more difficult, affect their retirement, and makes them just as responsible for the college loan as their student.

The $1.45 trillion in outstanding student loan debt in the U.S. is the second-highest level of consumer debt behind only mortgages. About 40 million Americans hold student loans and about 70 percent of bachelor’s degree recipients graduate with debt.

What co-signing means

While parents may talk to their children about student loans, few may go over how to repay the loans. If their kids don’t repay the loans that they’ve co-signed, the parents are legally responsible for the loans. If parents can’t afford those payments, then they shouldn’t co-sign the loans.

Most federal student loans don’t require a co-signer, but private loans often require one because students usually have little or no credit history.

A co-signer can be a parent, grandparents, guardian or other credit-worthy adult who will be responsible for the full amount of the student debt, regardless of the borrower’s ability to repay the loan.

Having two people responsible for repaying a loan can reduce the interest rate by as much as half a point, even if the co-signer doesn’t have a better credit score than the student. If they do, the rate could go lower.

How co-signing on a student loan will affect your credit score

Long before a student loan becomes due, it could hurt a co-borrowers credit score. The loan will show up on their credit report, just as any other loan would, and could hurt their credit score if it looks like they have too much debt.

The new loan could also improve their score by improving the mix of credit. Having a variety of loans that are paid on time — mortgage, auto loan and credit cards, among others — can raise a credit score.

When payments start on student loans — usually within six months of graduation — the co-signer’s credit score could drop if the new graduate isn’t making monthly payments on time or not repaying the loan at all.

A recent survey of co-signers by LendEDU found that 62 percent of parents who co-signed their children’s student loans believe that their credit scores have been negatively impacted by the agreements.

For co-signed private student loans, the most likely cause of the co-signer’s damaged credit score is a late payment by the primary borrower, the survey found. To a credit bureau, a late payment by the borrower is essentially the same as the co-signer making a late payment. The survey found that 43 percent of people said their children have made late payments that hurt the co-signers’ credit scores.

Difficulty getting other loans

Late payments can have a domino effect on the co-signers. After lowing their credit score, they can have more difficulty being approved for other loans such as a mortgage or auto loan. Forty percent of the LendEDU respondents said they had a tougher time qualifying for financing after co-signing student loans.

Late payments or defaulting on the loan will damage the credit history of both parties — student and parent. When the co-signer’s credit report is evaluated for a potential loan, including refinancing a mortgage, they could be denied or face a higher interest rate.

If a graduate misses too many student loan payments or defaults on the loan, lenders will then go to the parent to make the monthly payments.

Retirement problems

Student loan debt problems can also follow co-signers into retirement and can cause them to work longer and delay retiring.

The U.S. Government Accountability Office found that outstanding federal student loan debt for people 65 and older is growing, at $18.2 billion in 2013, up from $2.8 billion in 2005. The good news was that only 3 percent of households headed by people 65 and older — about 706,000 households — carry student loan debt.

Respondents in the LendEDU survey were almost split on if their child’s student debt put their retirement in jeopardy. Most said it didn’t, at 53 percent, and 47 percent said they felt it did jeopardize their retirement. An upswing in the stock market before the survey started and the resulting growth in retirement funds may explain why most people didn’t see an effect, LendEDU reasoned.

Options for co-signers

Co-signers can be released of their responsibility for the loan if the borrower seeks a release from the lender. Terms vary, and can include on-time payments for at least a year and are more likely to happen with private student loans. Just one missed payment can disqualify a borrower from this release option.

The co-signer would then be removed from the loan and the primary borrower would be entirely responsible for it.

Co-signers can also be released if the primary borrower refinances the loan on their own. This requires taking out a new loan to pay off the old loan, when the co-signer would be removed from the old loan.