With the rising cost of college, more students are turning to private student loans to help finance their education. Because many haven’t had time to build credit before starting college, they need cosigners to qualify for student loans.
If you’re considering this option, you’re not alone. According to research firm Enterval, approximately 92% of undergraduates with private student loans relied on a cosigner in the 2023-2024 school year.
Let’s get into the details of cosigining, including eligibility, requirements, and the advantages and disadvantages.
Who Can Be a Cosigner?
A cosigner is someone who agrees to assume responsibility for repaying your student loan if you can’t afford your payments. When you apply for a loan with a cosigner, potential lenders take that person’s credit score into consideration. This added consideration offers reassurance if you have limited credit or a poor score. Anyone with healthy credit can become a cosigner, but it’s most common for students’ parents to cosign with them.
Cosigner Responsibilities
A common misconception about cosigning a loan is that the cosigner will be solely responsible for its repayment, but that’s not true. Being a cosigner means that the cosigner and the student are jointly responsible for paying the balance of the loan.
If you stop paying your student loans, the loan servicer holds your cosigner accountable for payments. In some special cases, your cosigner won’t have to pay. In general, though, cosigning a loan is a long-term commitment that can’t be undone except through payoff, release, or extenuating circumstances.
Student Loan Cosigner Requirements
If you’re considering a cosigner, keep a few things in mind. First, having a highly-qualified cosigner could help you get competitive student loan interest rates and terms. A few things constitute a qualified cosigner:
- A good credit history: Cosigners are more likely to qualify for a loan with a credit score above 720, a low debt-to-income (DTI) ratio, and a history of on-time payments. A high credit score can also mean lower interest rates.
- Stable income: Lenders are more likely to approve your loan application if your cosigner has steady, verifiable income.
- Personal relationship to the student: While it’s not a requirement, it’s best to ask a family member or close friend to be your cosigner because cosigning a loan can be a financial risk.
The Pros and Cons of Cosigning Student Loans
As with all major decisions, it’s important to weigh the pros and cons before choosing to cosign a loan:
Pros of Cosigning a Student Loan
- Your loan may be more easily approved
- You, the borrower, can build credit by making on-time payments
- You will have a better chance of receiving favorable loan terms and lower interest rates
Cons of Cosigning a Student Loan
- The cosigner may become solely responsible for payments if you cannot pay
- Most lenders do a hard credit pull on both the borrower and cosigner, meaning a temporary credit score decrease
- Cosigning a loan could make obtaining additional loans, like a mortgage or car loan, more difficult due to a higher DTI ratio
- If you miss payments or your loan goes into default, it could hurt impact your cosigner’s credit score.
Common Questions About Cosigning Student Loans
How Does Cosigning Student Loans Affect Credit?
Before asking a friend or family member to take on the responsibilities of a cosigner, it’s important to understand how this could affect their credit. Since a cosigner and borrower share the responsibility of a loan, it appears on both of your credit reports. If you make payments on time and your loan is in good standing, then your cosigner’s credit could also benefit. Conversely, if you make late payments or your loan goes into delinquency, it could harm your cosigner’s credit or limit their future borrowing opportunities.
What Rights Do Cosigners Have?
Cosigning a loan is a major responsibility that shouldn’t be taken lightly. Cosigners can, however, take action to protect themselves if a borrower is unable to make payments. If you’re a cosigner and find that the primary borrower can no longer make payments, here are a few options available to you:
- Request a cosigner release
- Work with the lender to arrange split payments with the primary borrower
- Assume full responsibility for payments
- Refinance the student loans and take control of the debt
- Hire a student loan lawyer to help work through additional options
Learn More: Can You Refinance Student Loans as a Cosigner?
When Is a Cosigner Not Required?
You generally don’t need a cosigner to qualify for federal loans, as most don’t require a credit check. But if you’re looking at private student loans, having a cosigner could be beneficial.
Private lenders may require a cosigner if you don’t meet their income or credit history requirements. It’s also common for students who apply for private loans to add a cosigner to qualify for better loan rates. If you meet the lender’s eligibility requirements on your own, you won’t need to add a cosigner.
Have more questions about the student loan process or about how your cosigner fits in? At ELFI, our team is ready to help! Contact us today to learn more about your options.
