Pros and Cons of Cosigning on a Student Loan

When looking to take out a student loan, lenders may require a cosigner. This typically occurs when the borrower’s credit history is inadequate and the lender cannot determine if the applicant will be reliable in paying back what they borrow. After all, the lender wants to ensure they’ll be getting their money back. This is where your cosigner comes in. Lenders will look at a cosigner’s credit history and credit worthiness in order to help decide whether they should lend to the main applicant. In a sense, the cosigner is a backup plan. If the applicant defaults, there’s one more party responsible the lender could purse for collection. A Cosigner can sometimes be more important than the main applicant, as is the case with student loans, since typically the co-signer will have a more robust and positive credit history. If anything happens where the main applicant cannot payback their student loan, the lender has the ability to get payment from the cosigner, and if they don’t pay both parties run the risk of defaulting.

Who Can Be a Cosigner?

Virtually anyone can co-sign for a student loan, it doesn’t have to be a parent, but it is good practice to make sure you are choosing someone that you trust. It’s also important to know that adding that individual as a cosigner won’t impact your relationship with them. Creditors will also look for steady income and good to excellent credit scores, so make sure you are choosing someone who will help you lock in the best rates.

Benefits of a Cosigner

The benefits of having a cosigner on your private student loans make you more likely to be approved for a student loan, as well as being approved for more favorable interest rates. With the average student loan debt being over $30,000 saving a few percent on interest rates is worth a lot of saved money from interest payments.

Drawbacks

If you cosign on a loan you are also responsible for the debt obligation, so if the individual you co-signed has problems repaying, you are next in line in terms of liability. If you chose not to repay as a co-signer the impact to your credit worthiness could be detrimental.

Deciding whether or not to cosign is ultimately a personal decision at the end of the day. If you feel the individual you are co-signing for is responsible and you are glad to help then you should definitely consider doing so!

Having Trouble Finding a Cosigner?

For those having trouble finding a cosigner for private student loans, remember to look at all federal student loan options first. There are direct subsidized loans and unsubsidized loans that can be applied for. If this is not possible, that doesn’t mean you can’t get private student loans. The first thing you should do is check your credit score (you can do this for free on annualcreditreport.com) to see where you stand in terms of credit. If you have time before you need to borrow, you can possibly work on rising your score to the required amount for certain lenders. If raising your score isn’t an option, you can look into lenders that will offer loans based on your grades (yes this does exist!). These lenders will actually determine how much you can receive according to academic history. Always be sure to check for origination fees, application fees, repayment terms, in addition to APRs when looking into any of these loan options.

Can You Release a Cosigner from a Debt Obligation?

Cosigner release – Although the requirements can vary, you can typically release a cosigner from the obligation of an active loan after 12 months of timely payment, after graduation and after you complete the release form for the loan.