A lot of bloggers have been discussing this lately...if someone you care about asks you to cosign a loan, should you do it?
Here's one viewpoint on the subject -- including a warning that your good credit will not stay that way, if your cosigner doesn't pay -- and you don't, either. Here's another viewpoint, but it sounds suspiciously the same!
The Simple Dollar puts it straight: don't sign for the loan unless you're okay with paying it yourself.
Next question: should you make loans to people you care about, knowing they may not pay?
In our experience...yes. And no.
A few times during early marriage, we borrowed money from both sets of parents -- for a motorcycle and plane tickets. Both times, we made the payments as promised -- and in fact, paid extra so the loans would finish earlier. Neither of the parents asked for it -- we just did it.
We've also loaned substantial amounts of money to family and once, to a friend. We've had about a 50% payback rate -- and nearly every time we were repaid, we had to remind the recipient that we were owed and needed it back. Daughter #2 has been the shining exception: if she's borrowed it, she pays it back when she says she will. (Good on you, girlie!)
We've cosigned on one loan. Which, very quickly, we ended up paying on. (In fact, we're paying on it now, but doing it to pay the loan in question, and help out the person.) Nuff said.
Loans and friends/family are a strange mix. Don't do it, unless you can afford to lose it. Or just give it with an open heart. You may well have to do that, anyways, once you're done with the whole thing.