If you’re in the market for a private student loan (the kind you turn to once you’ve exhausted all your scholarships, grants, and federal funding), you’ve likely heard or will hear about cosigners. Having a cosigner can make a difference on your student loan eligibility and interest rate, so I wanted to take some time to talk about cosigners and answer your questions.
Here are a few of the basics to spark some conversation:
What exactly is a cosigner?
For private student loans a cosigner is someone who signs a loan with the student. The cosigner agrees to be responsible for the loan, along with the student. A cosigner is a person who takes on equal liability of a student loan. That means the cosigner is on the hook for any payment that the primary borrower doesn’t make.
Why do I need a cosigner?
Many college students don’t have an established credit history, so a cosigner is required to secure the funds. This makes the loan less of a risk for the lender. Even if a student has an established credit history, it may still be a good idea to apply with a cosigner. Why? Most private loans have tiered pricing. That means the interest rate is figured at a base rate (like Prime Rate or LIBOR ) plus a margin. For private student loans, that margin is based on credit. So bringing on a cosigner with excellent credit can improve the terms of a borrower’s loan.
Who should I get to cosign for me?
There isn’t a standard person that must cosign a borrower’s loan. In fact, by law lenders can’t tell you who should cosign your loan. Some common choices are family members like parents or grandparents. However, you can choose a non-relative, too. As long as the person has established credit and is willing, he or she can cosign. One thing is for sure though: No matter who you choose to cosign your loan, it’s important that you have a cosigner in mind at the beginning of the process, as it will help the lender in providing you with a more timely credit decision.
Will my cosigner be liable for my loan for the whole repayment period?
Not necessarily. Some lenders offer an incentive that gives borrowers the option to release their cosigner from the liability. This cosigner release is usually an option if the borrower proves that he or she is able to repay the loan. Many lenders ask borrowers to make a certain number of on-time payments before they can take on sole responsibility of the loan. Lenders may also require the borrower to meet certain credit guidelines at the time their cosigner is released.
Now, what else are you curious about when it comes to cosigning a loan or finding someone to cosign your loan? Here’s the place to ask.