Cosigners Can Help!
Cosigners play a critical role in helping borrowers to secure private student loans or student loan refinancing and qualify for a lower rate. If you’re a creditworthy cosigner, you can help a student or graduate responsibly borrow funds for their education. And often for a rate well below one they could get on their own.
Being a cosigner helps make a college education possible for the borrower, but the responsibility does come with financial risks. If the student defaults on the loan, the cosigner will be held liable for the remaining loan payments, and his or her credit history may be affected (in addition to the borrower’s).There are also certain requirements the cosigner must meet. The cosigner must have a good credit history and demonstrate certain income requirements.
With certain lenders, it may be possible for the cosigner to opt out with a cosigner release, which is obtained by the borrower. With a cosigners release, the borrower retains the loan on a stand-alone basis. To be eligible for this option, the borrower must first demonstrate how creditworthy he or she is, by providing proof of income and making 12-36 consecutive, full, on time payments of principal and interest. You must apply to request for the cosigner release.
Helpful Tips for the Parents and Cosigners of College Students
Figuring out how the school bills get paid is as much a part of the college experience as studying for exams, writing term papers, playing sports, and socializing. Only one name appears on the tuition bill: the student’s. Make sure the student takes ownership over the process the way they would with their studies. This is an opportunity for the student to learn valuable life lessons in personal financial management.
Apply for the FAFSA as early as you can.
The Free Application for Federal Student Aid (FAFSA) is the single most important form that must be completed in order for the student to get college funding. Federal and state government agencies, along with the school you plan to attend, determine how much financial aid you are eligible for based on the information provided on the FAFSA. It requires that you provide information from the parent’s and student’s prior year taxes. So if you are starting school in fall 2015, then the FAFSA requires the 2014 tax information for processing. Go to www.fafsa.ed.gov to complete the form.
School deadlines can vary, but try to file your FAFSA by at least February 15th to ensure maximum funding eligibility. This is because many grants are awarded on a first come, first serve basis. Filing the FAFSA late can put you out of contention for certain grants because schools simply do not have enough money to go around. The student must coordinate with their family to make sure the goal of filing the FAFSA on time is achieved for every year they attend college. If family taxes are unable to completed by the February 15th deadline, then complete the FAFSA on time with your best estimation and return to the website as soon as you have the taxes ready to enter the actual correct data. Remember, you will need to file the FAFSA every year– for each year you plan to attend college.
Grants are free money. So are scholarships.
The money you want the most is the kind you don’t have to repay. By filing the FAFSA early, you stand the best chance of acquiring need-based grants. They originate from three areas: the federal government, state governments and the colleges themselves. Please review the need based grants resource section for more details.
Scholarships are merit based and awarded by considering a student’s grades and standardized test scores, athletics, extracurricular activities, or other characteristics. They can come from a variety of sources like the school you attend or from scholarship organizations that you can apply for independently. Getting scholarship money to go to college is a great option but requires extra work on part of the student.
Access federal loans first.
As long as the FAFSA is filed, the student can access federal loans. While you want to avoid going into debt as much as possible, keep in mind that federal loans are the best loans you can use to help pay for college because they often offer more favorable rates and terms.
- The most common loan program is the Federal Stafford loan. It is offered through Direct loans, and comes in two options: Subsidized and Unsubsidized.
- The Parent PLUS loan is in the parents’ name; repayment begins while the student is still in school.
- The Perkins loan is a need-based loan awarded and processed by individual schools.
- Put the College Savings Plan in the parent’s name, and not the student's.
When using a college savings plan, you will want to keep the parent as the owner of the asset rather than the student. That’s because the Free Application for Federal Student Aid (FAFSA) will weigh the value of assets under the student’s name more heavily than the value of assets under the parents’ name. In order for your child to remain eligible for potentially more financial aid, keep college savings under accounts owned by the parent.
Apply to private loans only after you have applied for federal loans.
Only after you have exhausted all federal loan options should you look into taking a private loan. Private student loans are credit-based and in the student’s name. Because most recent high school graduates have little or no credit history, they will need a cosigner to get approved for a private loan. Interest rates on a private loan can vary based on the lender and the creditworthiness of the borrower and cosigner.
The Benefits of Making In-School Payments
Going into debt for college is often necessary for many families to achieve the goal of a higher education. If not done responsibly, managing debt after graduation can become an overwhelming task. Certain loans, such as the subsidized Stafford loan and the Perkins Loan have interest paid for by the government while the student is enrolled in school. However unsubsidized Stafford loans and private loans do accrue interest while the student is in school. Interest will continue to compound over the duration of enrollment.
In-school payments allow the student to make a standard minimum monthly payment towards the loan. This develops establish healthy financial habits and can help reduce the amount of total interest expense. More importantly, it helps the student to develop a credit history for future loans after graduation.
The ability to make a payment towards loans while in school has been available for both federal and private loans, but generally not promoted by private student loan providers, with most student borrowers electing to defer loan payments until after graduation. In-school payment provides the ability to reduce the debt load students face after graduation.