With the rising cost of college, you can quickly reach the annual borrowing limit for federal student loans. When that happens, what can you do? One option is to take out private student loans. But to qualify, you’ll likely need a student loan cosigner.
According to a 2021 report from MeasureOne, approximately 92% of all private undergraduate student loans were cosigned.
To improve your chances of qualifying for a student loan and a better rate, adding a cosigner is critical. Continue reading to learn about the role of a cosigner, what the requirements are to cosign a loan, and some cautions you should be aware of before submitting an application.
What Is a Student Loan Cosigner?
A cosigner is someone (often a family member) with great credit and a good job that applies for a loan with you, guaranteeing its repayment if you fall behind.
Adding a cosigner improves your chances of qualifying for a student loan. And even if you could qualify for a loan on your own, adding a cosigner can still be beneficial. With a cosigner on your application, you’re more likely to qualify for the lender’s best rates. Why is a cosigner so important? It’s because of how private student loans work.
When you apply for most federal student loans, the lender — the U.S. Department of Education — doesn’t look at your credit score or income. It only considers the cost of your program and your eligibility for federal financial aid.
Private student loans work very differently. They’re issued by individual banks, credit unions, and specialized online lenders. Student loans can be a risky business since lenders are giving money to young adults, so lenders typically have credit score and income requirements. If you don’t meet their minimum criteria, you won’t qualify for a loan.
However, lenders understand that college students are unlikely to have established credit histories or full-time jobs, so they offer a workaround: you can add a student loan cosigner to your application.
Tip: There are some private student loan companies that don’t require cosigners. However, non-cosigned loans tend to have much higher interest rates, so they aren’t always the best choice.
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What Is a Cosigner’s Responsibility?
Asking someone to cosign a loan with you is a big favor to ask. When someone cosigns a loan, they are legally obligated to make payments toward it if you fall behind. Because there is a backup if you become delinquent, having a cosigner decreases the lender’s risk, so they’re more willing to work with you and approve your loan application.
Not only is a cosigner on the hook for payments, but cosigning a loan can impact them in other ways:
- Cosigning adds a credit inquiry to their credit reports: When a cosigner applies for a loan with you, the lender will perform a hard credit check. Every hard credit check that occurs can damage credit scores, so that credit inquiry can cause your cosigner’s score to drop by several points.
- Acting as a cosigner can affect their eligibility for other forms of credit: Because your cosigner is legally obligated to repay the loan if you can’t or don’t, it can affect their eligibility for other forms of credit. Your cosigner may find that it’s difficult to qualify for a mortgage or car loan as long as the student loan is still outstanding.
- Late payments can damage a cosigner’s credit: If you miss a payment or, even worse, enter into default, the lender will report that activity to the credit bureaus. Because your cosigner is also responsible for the loan, late payments and student loan defaults can also damage their credit, making it harder — if not downright impossible — to qualify for credit cards or loans.
- A cosigner may not be able to afford the payments: When you miss a payment on the student loan, the lender will pursue payment from the cosigner. If your cosigner is on a tight budget, they may not be able to afford the payments and their other essential expenses.
As you can see, cosigning a loan is a major responsibility, and there can be long-term consequences that affect the cosigner. Before asking someone to cosign a loan, explore all of your options and make sure you can comfortably afford the payments on your own.
What Is a Cosigner Release?
A common question borrowers and cosigners have is, “is it possible for a student loan cosigner to be removed from the loan?” If the lender offers a cosigner release, the answer is yes.
A cosigner release is when the lender approves the removal of a cosigner from the loan. To qualify for a cosigner release, you typically have to make a certain number of payments on time — such as 24 to 48 monthly payments — and meet the lender’s income and credit score requirements on your own.
However, not all lenders offer cosigner releases. Some require the cosigner to stay on the loan until it’s repaid in full. If that’s the case, another option is to refinance the loan with another lender. When you refinance, you can apply using solely your information. If you’re approved for student loan refinancing, the existing loan is paid off, and your cosigner is no longer tied to the loan.
How to Find a Cosigner
If you need to take out private student loans to cover your remaining education costs, you’ll likely need a cosigner.
A student loan cosigner can be a parent, relative, or a good friend, as long as they meet the following requirements:
- Age: A cosigner must be at least 18 or the age of majority in your state.
- Citizenship: In most cases, the cosigner must be a U.S. citizen with a valid Social Security number.
- Income: The cosigner needs to meet the lender’s income requirements. In general, the cosigner needs a reliable source of income, such as a full-time job.
- Credit: A cosigner for student loans needs to have good to excellent credit. According to Equifax, one of the three major credit bureaus, that range means a score between 670 and 850.
- Debt-to-income ratio: Lenders want to see that cosigners have relatively low debt-to-income ratios (DTIs) — a percentage that reflects all of your monthly debts vs. your gross monthly income. . Ideally, lenders look for a DTI of 35% or less, but some lenders will approve applicants with DTIs as high as 50%.
To get a cosigner for your loans, follow these steps:
1) Consider Family Members and Friends
Although cosigners are usually parents, you aren’t required to use a parent as a cosigner. A cosigner can be anyone — including extended family members like grandparents, aunts and uncles, or cousins. A cosigner can also be a close friend that trusts you to handle the loan responsibly. The only caveats are that the cosigner must have good credit, a reliable source of income, and meet the lender’s citizenship and age requirements.
Once you’ve considered who might be a good cosigner, reach out to them directly. Explain why you need a cosigner and ask if they’d be willing to help you by cosigning your loan.
Be prepared to make a compelling argument. A cosigner wants to know that you understand the financial risks involved and that you can handle any debt responsibly. Before asking someone to cosign a loan, know exactly how much you need to borrow to pay for college tuition and other expenses, and talk about how you plan to pay it back after you graduate. For example, you may want to mention your career prospects and typical starting salaries in your intended field.
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2) Review Loan Terms
Once you have identified someone to be a cosigner, you can shop for a loan together. When reviewing your options, look for loan terms that your cosigner is comfortable with. For example, a cosigner may only be comfortable with a loan that has a 10-year term rather than one that is repaid over 15 years.
3) Discuss Payments
Talk to your intended cosigner about how payments will be handled. To ensure your cosigner feels secure with the arrangement, you may agree to some extra precautions. For example, some ideas to discuss include:
- Making payments three days before their due date
- Signing up for automatic payments
- Sending the cosigner a confirmation when the payment is made
- Providing the cosigner with login information to view the status of the account
- Notifying the cosigner at least two weeks in advance if you’re in danger of missing a payment due date
4) Consider Forbearance and Hardship Options
As you shop for a loan, be sure to research lenders’ forbearance and financial hardship policies.
Every lender has its own policies, and not all allow borrowers to postpone payments if they lose their jobs or become seriously ill. With some lenders, the cosigner is expected to take over the payments, with no alternatives available.
By contrast, other lenders have clear financial hardship policies that allow you to postpone or pause your payments for several months. During that time, your cosigner doesn’t have to make payments either, and the loan isn’t in default; it gives you a few months to get your finances in order so you can resume payments.
5) Find Out Cosigner Release Policies
Cosigning a loan is a serious commitment. If your cosigner hopes to be released from the loan before it’s paid in full, check out the lender’s cosigner releases policies. Make sure you both know how many payments must be made to qualify, and what credit score and income you’ll need as the primary borrower to get approved for a cosigner release.
Applying for Student Loans
If you need private student loans to pay for your remaining college expenses, you will likely need a cosigner to apply with you. Most private student loan lenders have strict credit and income requirements, and most young adults won’t qualify on their own. Adding a cosigner to your application makes it more likely that you’ll get approved and get a better interest rate.
Once you have a student loan cosigner, compare offers from leading lenders to find the best rates. With Purefy, you can get quotes from top private student loan companies by filling out one simple form, and it doesn’t affect your credit score.
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