Often, students need cosigners in order to qualify for a student loan or student loan refinance. This is because many students don’t have an extensive credit history of their own. The other person cosigns the loan application so that the lender will consider their credit and income as well as yours. There are many benefits to using this strategy if you know someone who is willing to cosign your student loan. In this blog, we will answer some of the most frequently asked questions about having a cosigner on your student loan.
What are some of the benefits of having a cosigner?
The main reason to use a cosigner if you don’t have a long or strong enough credit history to take out a loan on your own. When you have a cosigner, the lender will typically combine your finances and credit with that of the cosigner. Applying with a cosigner that has a strong enough financial profile may increase your chances of being approved despite your own lack of credit or income.
But there is another benefit of having a cosigner. Combining their financial history and strength with yours may help you secure a lower interest rate. A lower interest rate is extremely valuable when it comes to paying back your student loan. Over the lifetime of a loan, it can save you thousands of dollars.
Who usually cosigns on a student loan or student loan refinance?
The most common scenario is for a parent to cosign for their child’s private student loans when there is a financial gap between the cost of attendance and federal aid received. Oftentimes relatives will also help a recent graduate who wants to refinance or consolidate student loans in order to save money or make the monthly payments more manageable. A parent or guardian, relative such a grandparent, or even your spouse may be a potential cosigner for a student loan. But your cosigner doesn’t even need to be a relative. Anyone who is willing and able to cosign can do so if they wish.
What are the main criteria lenders expect and require from a cosigner?
Financial eligibility is key. That means that the cosigner needs to have good enough credit and a strong enough financial profile to qualify for the loan. They will be filling out a loan application, in other words. So whether the loan is approved or not will depend on how well they meet the borrowing standards of the lender.
What are examples of cosigners helping with a student loan or refinance?
If you just graduated, for example, and are still building your career, you may benefit from a cosigner so you can refinance into a more affordable student loan. Later, as your own financial profile strengthens, you may be able to have the cosigner removed so that only you are the borrower on your loan. That will give you more financial independence and relieve the cosigner of any future responsibility or liability for repaying your loan.
Can my spouse be a cosigner on a student loan or student loan refinance?
If you have a spouse who has significantly better credit, less debt, or higher income than you do, you may want to consider using them as your cosigner. That’s especially helpful if you both like to share your financial resources. Over the long term, a strategic student loan refinance may save a lot of money. As a couple, you could even set aside whatever is saved to set up a tuition account for your own children.
What risks or responsibilities must a cosigner accept?
Anyone who is a cosigner on a loan can be held legally and financially responsible for the repayment of that loan. If you fail to repay your loan, that could create serious problems for your cosigner, as well as harm their credit score. Despite the fact that being a cosigner carries such weighty responsibility, many people still do it. You may be surprised to know that 90% of all private student loans for undergraduates require a cosigner.
Can the cosigner later be removed from the loan?
It depends on your lender’s policies, but many lenders do offer the option to have the cosigner released after a certain period of time. They will first want to see that the loan has been repaid as agreed, on time, every month, for an extended period of time. To understand if a cosigner release is available with your loan or student loan refinance review your loan agreement and discuss it with your particular lender. Releasing your cosigner frees them up from any legal or financial connection to the loan, and it can enable you to start building your own credit profile in a more substantial way.