A co-signer is a person who has a good credit score and a good history of repaying loans. Usually, most private student loan require a co-signer.
They sign a loan with you to make the lender feel confident that the loan will be paid back.
The co-signer and you are responsible for repaying the loan, so if you can’t make the payments, the co-signer will have to do it.
When you apply for a loan with a co-signer, the lender looks at both your financial history and the co-signer’s.
Sometimes, if your financial history isn’t strong enough, you may need a co-signer to qualify for the loan.
Even if you can get the loan without a co-signer, having one could improve your interest rates and loan conditions.
When Do You Need a Co-signer for a Student Loan?
Private student loans usually require a co-signer if you have a limited credit history or a low credit score.
Even if you qualify for a loan, having a co-signer can be beneficial if you are still building your credit.
By adding a co-signer, you will likely receive more attractive loan offers with lower interest rates.
However, you can apply without a co-signer for most federal student loans. This is because undergraduate loans and some graduate school loans don’t require a credit check, making them available to all eligible students regardless of their credit history.
You may also be eligible for a private student loan without a co-signer if your credit score is good, preferably above 650.
With a strong credit score and a record of on-time payments, you might qualify for a loan independently.
Some lenders may even have unique student loan options without a co-signer or with unconventional application requirements.
Who Can Be a Co-signer
A cosigner is typically a parent or a relative, but it doesn’t have to be. Any person with good credit and U.S. citizenship, who is at least 18 years old, can cosign a private student loan.
However, having a strong relationship with the borrower before cosigning is crucial.
Once you cosign, you become fully responsible for the entire loan amount if the borrower fails to repay.
This means that if the student cannot make payments in the future, you will have to cover them.
Cosigning can benefit students by enabling them to afford college, build their credit score, and get lower interest rates, making their student loans more manageable.
Pros of Being a Co-signer to a Student Loan
The benefits of cosigning a private student loan for someone are as follows:
1. Improve Loan Approval Chances
Private lenders have specific requirements for income, debt-to-income ratio, and credit score.
Cosigning allows you to use your established credit history and income to help your loved one get approved for student loans, especially if they lack sufficient credit history or scores.
2. Secure Lower Interest Rates
Your good creditworthiness as a cosigner reduces the risk for lenders, making your loved one eligible for lower interest rates, better terms, and higher borrowing amounts.
This reduces their monthly payments and saves them money on interest in the long run.
3. Qualify for a Larger Loan Amount
Non-cosigned private loans often have lower maximum loan amounts. Cosigning ensures that students receive the total amount they need for their education.
4. Build Credit
Cosigning helps the student build their credit history. As they make timely payments, their positive payment activity will be reported to credit bureaus, which improves their credit score.
This can benefit them in obtaining future credit cards and other loans.
Cons of Being a Co-signer to a Student Loan
The downsides of cosigning a private student loan are as follows:
1. Responsibility for Payments
As a cosigner, you are responsible for making loan payments if the primary borrower fails to do so. You’ll have to make them if they fall behind on payments.
Discussing repayment expectations and assessing the risks associated with borrowing together is crucial.
2. Credit Score Impact
If your borrower misses payments and you are unaware, it could negatively affect your credit score, and the loan account may be sent to collections.
3. Impact on Qualifying for Other Credit
Cosigning a student loan can increase your debt-to-income ratio. This could hinder your chances of qualifying for other loans or result in less competitive interest rates.
4. Strain on Relationships
Sharing a significant debt burden can strain relationships, especially if the student faces financial hardship or struggles to find a job after graduation.
Openly communicate expectations and concerns before cosigning to avoid potential conflicts.
5. Lack of Payment Notifications
You might not receive notifications about missed payments, potentially impacting your credit score.
Encourage the student to keep you informed and sign up for autopay to avoid this.
6. Limited Cosigner Release Options
Not all lenders offer cosigner releases, meaning you may have to remain a cosigner until the loan is fully repaid.
Alternatively, your child could refinance the loan after graduation to release you as a cosigner, subject to approval.
Read Also: Best Student Loan Lenders in 2023
Freeing a Co-signer from Your Loan
Private lenders often require co-signers for student loans. Still, some lenders may allow co-signer release under certain conditions, such as demonstrating creditworthiness and making a specific number of on-time payments.
A co-signer release allows you to relieve your co-signer of their legal obligation once you demonstrate your ability to make payments independently.
Releasing a co-signer from your loan is straightforward if your lender offers this option and you meet the payment requirements.
You must complete a form to request the release and may undergo a credit check.
If you plan to release your co-signer, choose a lender that openly communicates its co-signer release policy.
Make sure to make timely loan payments and work on improving your credit score to increase your chances of qualifying. You can often apply for co-signer release after 12 to 36 months.
Besides the co-signer release, there is another way to remove a co-signer. Student loan refinancing can remove the co-signer and save you money if you qualify for a lower interest rate.
You’ll need good credit, enough income, and a history of on-time payments to qualify for refinancing.
Student Loan Lenders With Fastest Co-Signer Release
Some lenders offer co-signer release if you cannot secure a better interest rate through refinancing;
|Lenders||Co-Signer Release||Min. Credit Score|
|Ascent Credit-based Student Loan||After 12 months of payments||Low-Mid 600s|
|Sallie Mae Undergraduate Student Loan||After 12 months of payments||Mid-600s|
|Advantage Education Private Student Loan||After 12 months of payments||N/A|
|SoFi Undergraduate Student Loan||After 24 months of payments||Mid-600s|
|LendKey Private Student Loan||After 24 months of payments||660|
|Nelnet Bank Private Student Loan||After 24 months of payments||Mid to High 600s|
|RISLA Private Student Loan||After 24 months of payments||680|
|ISL Private Student Loan||After 24 months of payments||660|
Frequently Asked Questions
Yes, your spouse, relative, guardian, or friend can be a co-signer for your student loan.
However, only one person can co-sign for a private student loan. For example, if both parents are willing to co-sign, only one can do it.
The co-signer is equally responsible for repaying the entire loan, not just a part of it.
Yes, international co-signers can be a parent or guardian from a foreign country, but they must go through relevant identification checks.
If you don’t pay or default on your loan, the lender may take legal action against you or use debt collection agencies to try to collect the money owed.
Sometimes, they may sell the debt to a “debt buyer” to recover the funds.
If the conditions set by the lender are met, they can remove the co-signer from the loan.
For example, they may require two years of on-time payments. If that’s the case, after 24 consecutive months of payments, there might be an opportunity to remove the co-signer.
There is no specific limit, but lenders will evaluate your income and credit history to determine if you can be a co-signer.
However, you should carefully consider the risks and consequences every time you co-sign for a loan because you are also responsible for repaying it.
As a co-signer, you usually stay on the loan until it’s fully paid off or until the borrower can refinance and qualify for a loan without a co-signer.
Yes, before considering co-signing, ensure the student has already explored federal Direct subsidized and unsubsidized loans.
Additionally, look into grants and scholarships, which don’t require a credit check or co-signer and do not have to be repaid.
Many states offer state financial aid programs, and colleges may have financial assistance programs like work-study that can help cover college costs without relying on a co-signed loan.
Yes. Students with at least two years of credit history may qualify for student loans without a co-signer.
However, their loan options might be limited and have high-interest rates.
For students with little to no credit history, outcomes-based loans might consider factors like GPA, school, or significant to assess trustworthiness.
But these loans might not be available to first-year undergraduates and could have high-interest rates.
Read Also: What Student Loan Should I Get
Student loans with co-signers can be a valuable resource for college students with limited credit history or lower credit scores.
Co-signers, typically parents, relatives, or friends, provide crucial support by increasing the chances of loan approval and securing more favorable loan terms.
However, co-signing a student loan comes with significant responsibilities and potential risks for the co-signer.
It is essential for both the borrower and the co-signer to have open communication, clear expectations, and a well-thought-out plan for repayment.
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