In many cases, taking out a student loan becomes a necessary part of financing a college education. However, not all students qualify for loans independently. That’s where a student loan cosigner can play a crucial role. This in-depth guide will explain what a student loan cosigner is, when one might be necessary, the pros and cons of cosigning, and how it affects the credit of both the borrower and the cosigner.
We’ll also explore ways to remove a cosigner from a loan and offer alternatives for students who wish to avoid this route. Whether you’re a student or someone considering cosigning, understanding the implications can significantly influence your financial future.
What Is a Student Loan Cosigner?
A student loan cosigner is typically an adult—often a parent or guardian—who agrees to share responsibility for repaying the student’s loan. Cosigners are commonly required for private student loans, as many students do not have sufficient income or a solid credit history.
When a borrower is unable to repay the loan, the cosigner becomes legally responsible for the debt. This added security reduces risk for the lender and can help the student secure the loan or qualify for more favorable interest rates.
When Do You Need a Cosigner?
Most federal student loans, such as Direct Subsidized and Unsubsidized Loans, do not require a cosigner. These are awarded based on financial need and cost of attendance—not creditworthiness.
However, private student loans often do require a cosigner if:
-
The student has little or no credit history.
-
The borrower’s income is insufficient to cover the loan payments.
-
The student’s credit score falls below the lender’s minimum requirement.
-
Lenders require a cosigner for borrowers under age 21, regardless of credit.
Private lenders assess risk using credit scores and income data, and a reliable cosigner helps mitigate this risk.
Who Can Cosign a Student Loan?
Almost any financially responsible adult can serve as a cosigner, including:
-
Parents or legal guardians
-
Grandparents
-
Spouses or domestic partners
-
Relatives or trusted family friends
Typical requirements for cosigners include:
-
Being a U.S. citizen or permanent resident
-
Being at least 18 years old
-
Having a credit score of 670 or higher
-
Demonstrating stable income and employment
Lender criteria may vary, so it’s crucial to review specific loan terms before applying.
Pros and Cons of Cosigning a Student Loan
Benefits for Students
-
Increased access to loans: Students with limited credit can still qualify for private loans.
-
Better interest rates: A cosigner with good credit can help the student get a lower rate.
-
Credit building: Timely payments by the student will boost their credit score over time.
Benefits for Cosigners
-
Helping a loved one: Cosigning enables a student to pursue higher education opportunities.
-
No immediate payments: Cosigners typically only step in if the student fails to repay.
Risks for Cosigners
-
Credit impact: Missed or late payments will negatively affect the cosigner’s credit score.
-
Legal responsibility: Cosigners are fully liable for the debt if the student defaults.
-
Limited borrowing power: Cosigned loans appear on the cosigner’s credit report and can impact their ability to obtain future credit or mortgages.
Credit Score Impact of Cosigning
Both the student and cosigner share equal responsibility for loan repayment. Therefore:
-
On-time payments help build or maintain strong credit for both.
-
Late or missed payments damage both parties’ credit profiles.
-
The loan increases the cosigner’s debt-to-income ratio, potentially affecting their borrowing ability for other needs like car loans or home mortgages.
Some lenders allow cosigners to access account information, helping them monitor payment activity and protect their credit.
How to Remove a Cosigner from a Student Loan
Many cosigners want to know if and when they can be released from the loan. Here are three common options:
1. Cosigner Release
Some private lenders offer a cosigner release option after a series of on-time payments (usually 12 to 36 months) and proof that the student can handle repayment independently. Approval isn’t guaranteed, and eligibility criteria differ among lenders.
2. Student Loan Refinancing
If the student builds a strong credit history and stable income, they may refinance the loan in their name alone. This removes the cosigner and often results in better interest rates.
3. Full Repayment
Once the loan is fully paid off, the cosigner is no longer held liable. However, this can take years depending on the repayment plan.
Responsibilities and Risks for Cosigners
Before agreeing to cosign, it’s important to understand the full scope of responsibility:
-
You’re equally liable for loan repayment.
-
Missed payments will impact your credit.
-
The loan will appear on your credit report.
-
Default by the student can lead to collection efforts or legal action.
Cosigning is a serious financial commitment. Have an honest conversation with the student and make sure they understand the expectations and their repayment plan.
Best Practices for Students and Cosigners
Students Should:
-
Only borrow what is necessary.
-
Establish a clear repayment plan.
-
Make on-time payments to protect your own and your cosigner’s credit.
-
Communicate regularly with your cosigner.
-
Ask your lender about cosigner release options early.
Cosigners Should:
-
Thoroughly review all loan terms before signing.
-
Monitor the loan account if access is available.
-
Be prepared to take over payments if necessary.
-
Discuss expectations upfront with the student.
-
Set up payment alerts or notifications.
Alternatives to Using a Student Loan Cosigner
If you want to avoid involving a cosigner, consider these alternatives:
-
Complete the FAFSA to apply for federal loans, grants, work-study programs, and scholarships.
-
Apply for scholarships and grants from schools, nonprofit organizations, and private sources.
-
Consider income-share agreements, where you pay a percentage of future income instead of borrowing.
-
Build your credit by using a secured credit card or becoming an authorized user before applying.
-
Work part-time or pursue internships during college to reduce borrowing needs.
Final Thoughts: Should You Cosign a Student Loan?
A student loan cosigner can make higher education attainable for students who may not qualify on their own. While it’s a valuable financial tool, it comes with significant responsibilities for both the borrower and the cosigner.
Before proceeding, discuss the financial risks openly, set expectations, and have a solid repayment strategy. Whether you’re the borrower or the cosigner, make informed decisions to protect your financial future while investing in education.