Taking out student loans is often necessary to pay for college, but you may need more credit history if you are considering a private student loan; a cosigner is usually a requirement.
In this case, adding a cosigner to your loan application can help you get approved. But before you make this decision, some important factors must be considered.
Keep reading to learn about using a cosigner to get a student loan if you are considering using private financiers.
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What is a Cosigner on a Student Loan?
A cosigner agrees to be legally responsible for repaying your student loan if you cannot make the payments yourself.
This is usually a parent, relative, or friend with good credit and a solid income. Adding them to your application boosts your chances of approval even if you have little or no credit history.
The cosigner will not receive the loan funds – those go directly to you for paying tuition and other college expenses.
But they are equally responsible for repaying the loan, including principal, interest, and late fees. Defaulting on the loan can negatively impact both your and the cosigner’s credit.
Pros of Using a Cosigner for a Student Loan
There are some potential benefits to getting a cosigner for student loans:
- Better chances of approval: With private student loans, having a cosigner with good credit can mean the difference between getting approved or denied. A cosigner may help you get a private loan if you do not qualify for federal loans.
- Lower interest rates: Adding a cosigner with excellent credit can qualify you for the lowest interest rates a lender offers. This keeps your overall repayment costs lower.
- Higher loan limits: Some lenders allow higher loan amounts if you apply with a creditworthy cosigner. This provides you access to more funds to cover college costs.
- Building your credit history: Making on-time payments will help build your credit score. After a few years of steady payments, you can apply to have the cosigner removed.
Cons of Using a Cosigner for a Student Loan
However, there are also some risks involved if you are considering a student loan with a cosigner:
- Shared responsibility for repaying the debt: If you have trouble making payments, it will negatively impact your credit and the cosigner’s. Default or delinquency can hurt their credit score and make it harder for them to qualify for credit or loans.
- Potential strain on your relationship: If you cannot keep up with payments, it can damage your relationship with the cosigner. They trusted you with this financial responsibility.
- Cosigner release may not be guaranteed: Some private lenders do not allow you to release the cosigner after a certain period. They may be responsible until the loan is paid in full.
- Bankruptcy protections impacted: If your cosigner declares bankruptcy, the lender can still collect your debt. And it may be harder for you to file bankruptcy on a cosigned loan.
Tips for Getting a Cosigner on a Student Loan
If you decide to move forward with a cosigned student loan, keep these tips in mind:
- Ask someone with excellent credit and a steady income to cosign. This gives you the best shot at approval and affordable rates. Avoid anyone with existing debt problems or credit issues.
- Be conservative when estimating the loan amount needed. Take out the minimum required rather than maxing out what you can qualify for. This lessens the burden on you and the cosigner.
- Look into release options. Some lenders let you apply to release the cosigner after 1-2 years of consecutive payments. See if this is possible with the loan you choose.
- Keep the cosigner informed about your payments. Communicate early if you anticipate any issues making the monthly payments.
- Pay interest payments while in school. This prevents debt from piling up and shows responsibility. Work part-time and put any gifts or extra funds toward interest when possible.
- Create a repayment plan together. Ensure you understand expectations and agree on a plan to cover the payments.
Alternatives to Consider Before Getting a Cosigner
Before considering a student loan with a cosigner, be sure to exhaust all other options:
- Apply for federal direct loans in your name – these do not require a creditworthy cosigner.
- Research scholarships and grants you may qualify for. Tap into financial aid resources.
- Compare federal loans vs. private loans to see what makes sense for your situation. Federal loans typically offer more protections and flexible repayment.
- Look into whether your state or college offers low-interest student loans you can access solo.
- Consider working part-time while in school to help cover expenses and minimize how much you need to borrow.
- Attend a community college for one or two years to complete prerequisites at a lower cost before transferring to a four-year university.
Weigh these alternatives first before taking the cosigner route for a student loan.
What to Do if Denied by a Cosigner
Getting turned down for a private student loan, even with a cosigner, can be frustrating. But don’t give up!
Here are some tips if this happens:
- Don’t take it personally. Lenders have tightened requirements due to economic conditions. See what criteria you failed and if there are ways to improve your case.
- Ask the lender for recommendations. They may suggest trying with a different cosigner or steps the cosigner can take to boost their credit score.
- Shop around with other lenders. Each lender has their underwriting policies. One may approve you when another denies it.
- Appeal the decision when possible. Provide updated income or credit info, or write a goodwill letter to explain your situation.
- Adjust the loan amount requested. Applying for less may get approval. You can take out additional small loans each year as needed.
- Enlist the school’s help. Many college financial aid offices have relationships with lenders and can advocate for students.
- Beef up your credit. As a last resort, take 6-12 months to build your credit score before reapplying. Make all payments on time and pay down balances.
Don’t let a denial with one lender deter you – persist and explore every option before pulling your cosigner into a lengthy financial commitment.
Weigh the risks carefully, but know you still have avenues if initially denied.
Questions to Ask a Potential Student Loan Cosigner
If you’re considering a private student loan with a cosigner, have an open, honest conversation first.
Here are some important questions to ask:
- Are you able and willing to make the monthly payments if I cannot at some point? This responsibility can last until the loan is fully paid off.
- Do you understand this loan will appear on your credit report and impact your credit score and ability to get approved for loans/credit cards?
- Are you financially secure enough to take on loan payments if needed? How might this impact your budget and financial situation?
- Do you foresee any life changes (going back to school, retirement, etc.) that could impact your ability to cover payments?
- Have you cosigned loans for anyone else? How many individuals are you currently responsible for financially?
- Will cosigning this loan prevent you from qualifying for a future mortgage or auto loan?
- If I experience financial hardship, are you open to working with me on ways to keep the loan current?
- If I default on the loan, what would you need from me to help protect your credit and meet the legal obligation?
- Do you expect to be paid back or require compensation for cosigning this loan?
Have an open and honest discussion before moving forward. Cosigning a loan can impact your relationship and finances, so transparent communication is key.
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What to Do if Your Student Loan Cosigner Dies or Files Bankruptcy
Finding out your student loan cosigner died or filed for bankruptcy can be stressful. Here are some steps to take in either situation:
If your cosigner dies:
- Contact the lender immediately and provide a copy of the death certificate. Some federal and private loans may be discharged, but this varies.
- The lender may create a new loan contract just in your name. However, income and credit requirements would apply as if refinancing.
- Make payments on time going forward, and keep communicating with the lender about how the cosigner’s passing affects you.
- If loan discharge is not offered, ask about death discharges if the deceased cosigner’s estate cannot pay.
- Consider life insurance payouts that may be available to put toward the loan balance. You may need to refinance the loan into your name only.
If your cosigner files for bankruptcy:
- Keep making regular payments and contact the lender to demonstrate commitment.
- Your responsibility remains unchanged – the lender can still collect from you regardless of your cosigner’s bankruptcy status.
- Ask about removing the cosigner from the loan. You may need to refinance in just your name.
- Be proactive about getting the loan back in good standing if payments were missed leading up to the bankruptcy.
- Continue building your credit history. After 1-2 years of on-time payments, you may qualify to take over the loan solo through refinancing.
Stay calm, know your rights, and keep the communication flowing with the lender. Having a backup plan helps if your cosigner can no longer participate.
Is It Easy to Remove a Cosigner From a Student Loan?
Ready to remove your cosigner from a private student loan? It may take a lot of work. Here’s what to know:
- Most lenders won’t allow immediate cosigner release. You’ll need to make 12-24 consecutive on-time payments first.
- Meeting the payment requirements doesn’t guarantee approval to remove the cosigner. It depends on your income, debts, and credit score.
- You’ll likely need a credit score in at least the high 600s and a low debt-to-income ratio to qualify solo.
- The cosigner release application involves paperwork and documentation similar to refinancing the loan.
- Since lenders reassess your risk, interest rates and terms may change when the cosigner is removed.
- The cosigner release process may be associated with fees – lenders must cover their costs.
- If not done online, it can take 45-60 days to complete the full cosigner release process with a lender.
- With federal PLUS loans, the process is different. Contact your loan servicer about options to transfer a PLUS loan to just the student’s name.
Don’t count on quickly or easily removing your cosigner – it often involves time and tasking financial requirements. Maintain excellent credit and steady income to improve your chances of qualifying.
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Final Thought
Getting approved for a student loan when you have little credit history often requires bringing in a co-signer.
This person shares responsibility for the debt, so it’s a decision not to take lightly. Consider alternatives first and have candid conversations to set clear expectations.
Weigh the positives, like better loan terms, against the risks of putting your cosigner’s finances and credit on the line.
Manage the loan responsibly, staying in touch with the lender. Build your credit so that removing the cosigner can eventually become a reality.
With the right planning and partnership, cosigning a student loan can benefit all parties involved.
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