Lana Oconnell
When a student takes out a loan with a cosigner, the cosigner is equally responsible for making timely payments. Missed payments can negatively impact both the student and the cosigner's credit history. If the loan goes into default, private lenders may hire collection agencies to get the cosigner to repay. Therefore, before co-signing a loan, the cosigner should consider whether they are willing to risk harm to their credit record if the student borrower does not repay the loan.
| Characteristics | Values |
|---|---|
| Responsibility of cosigner | Cosigner is equally responsible for making loan payments on time |
| Impact on credit score | Missed payments negatively impact the credit score of both the borrower and the cosigner |
| Cosigner release | Borrower may apply for cosigner release after making a certain number of on-time payments and meeting credit requirements |
| Cosigner requirements | Cosigner must be a creditworthy adult with a good credit score |
| Cosigner benefits | Cosigning can help the borrower build their credit history and develop good financial habits |
| Cosigner risks | Cosigner's credit record may be harmed if the borrower does not repay the loan |
| Cosigner alternatives | Some lenders offer non-cosigned student loans or loans without a credit check |
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What You'll Learn
Cosigner's credit history is impacted
A cosigner is a creditworthy adult who agrees to repay the loan if the student can't. When a cosigner is added to a private student loan, the lender has more assurance that the loan will be repaid. The cosigner's credit history is evaluated along with the student's, and the combination of both can increase the chances of loan approval and may result in a lower interest rate.
Since the cosigner is equally responsible for the loan, any missed payments or defaults will negatively impact their credit report. This can cause serious harm to their credit record. Private lenders often hire collection agencies to get a cosigner to repay in the event of a default.
To avoid any problems with shared debt, the student borrower can apply to release their cosigner after they have graduated and made a certain number of on-time principal and interest payments. The borrower must also meet certain credit requirements to prove they can pay back the loan on their own.
It is important for cosigners to carefully consider the risks involved before agreeing to share the responsibility of repaying a loan.
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Cosigner is legally obligated to repay
A cosigner is a creditworthy adult who agrees to repay the loan if the student can't. They are equally responsible for paying it back on time and in full. When you're added as a cosigner for a private student loan, the lender has more assurance that the loan will be repaid. Your credit history is evaluated along with that of the student; the combination of both can give the student a better chance of being approved for a loan—maybe at a lower interest rate.
Lenders want to make sure both the student and the cosigner can repay the loan. They’ll check things like credit score, payment history, and any past issues like defaults or bankruptcies. Before co-signing a loan, consider whether you are willing to risk harm to your credit record if the student borrower does not repay the loan. If the loan goes into default, private lenders often hire collection agencies to get a cosigner to repay. A 2019 survey found that a quarter of co-signers end up making at least one payment because the primary borrower failed to.
If you've co-signed a private student loan, you have an equal financial responsibility and legal obligation to make sure the loan is repaid. Missed payments can negatively impact your credit report as well as the student's. If the loan goes into default, the lender can sue both you and the primary borrower to collect on the debt.
If you are a cosigner, you may want to be released from the loan. Certain lenders let you apply to have your cosigner released from your private student loan after you’ve graduated, made a certain number of on-time principal and interest payments, and met certain credit requirements.
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Cosigner release options
When a loan payment is missed, it affects both the borrower and the cosigner's credit. Therefore, if you are in a better financial position and want to release your cosigner from the loan, there are a few options. Firstly, certain lenders allow borrowers to apply for a cosigner release after they have graduated, made a certain number of on-time principal and interest payments, and met specific credit requirements. For example, Sallie Mae® requires 12 on-time principal and interest payments, a satisfactory credit history, and no bankruptcies or delinquencies in the last 24 months.
Secondly, if your lender does not offer a cosigner release option, you may be able to qualify for a student loan refinance by yourself if you meet the credit requirements. For instance, Earnest allows borrowers in good standing to apply for a refinance every six months, which may result in a lower interest rate without needing to switch lenders.
Thirdly, federal loans generally have a variety of repayment options that can make them more affordable, so it is worth exploring these options before committing to refinancing. Additionally, federal PLUS Loans for parents and grad students may have a cosigner option.
Finally, it is important to note that only the borrower can apply for a cosigner release, and the cosigner release form must be submitted to the private student loan lender.
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Cosigner's role in loan approval
A cosigner is a creditworthy adult who signs a loan agreement and is equally responsible for paying it back on time and in full. The cosigner's role in loan approval is significant, as they can improve the chances of a borrower getting approved for a loan. Lenders evaluate the credit history of both the borrower and the cosigner, and the combination of both can increase the likelihood of loan approval, possibly at a lower interest rate.
When a cosigner adds their name to a borrower's loan application, they agree to the lender reviewing their credit profile and financial information to determine their eligibility. The cosigner's strong creditworthiness can offset the lender's risk of lending to a borrower with lesser qualifications. The cosigner's signature could improve the loan's approval odds and potentially secure more favourable terms.
However, it is essential to understand the risks involved in cosigning. The cosigner is legally responsible for repaying the loan if the borrower defaults. Missed or late payments can negatively impact both the cosigner's and the borrower's credit history and score. Before becoming a cosigner, one must carefully consider the obligations and risks involved.
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No cosigner loan options
When a borrower misses a payment on a co-signed loan, it affects both the borrower and the co-signer's credit history. Late or missed payments can also lead to collection agencies getting involved to ensure repayment from the co-signer.
Now, here are some no-cosigner loan options:
Federal Subsidized/Unsubsidized Loan
This is the best option for all student loan borrowers as their first option. It has a fixed APR of 6.39-7.94%. There is no credit check required, and it offers lower interest rates than many private lenders.
Ascent Non-Cosigned Student Loan
This is a good option for upperclassmen with no credit, income, or co-signer. It has a fixed APR of 12.98-14.93%. There is no penalty for early repayment, and students can choose from various repayment options, including interest-only, $25 minimum, deferred repayment, or immediate repayment.
Funding U Private Student Loan
This loan is best for students with a strong GPA, with a fixed APR of 7.95-12.49%.
MPOWER Private Student Loan
International students with no co-signer can benefit from this option, with a fixed APR of 12.99-15.99%.
Prodigy Finance No Co-Signer Loan
Prodigy Finance offers no-cosigner loans based on the borrower's future earning potential, removing the need for a credit history, collateral, or a co-signer. The loans have a starting interest rate of 9.34%.
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Frequently asked questions
A cosigner is a creditworthy adult who signs a loan and is equally responsible for paying it back on time and in full.
If a payment is missed, it affects both the borrower and the cosigner's credit. The cosigner will be expected to make the payment if the borrower defaults.
Yes, federal student loans do not require a credit check and are based on the information provided in the Free Application for Federal Student Aid (FAFSA). However, private student loans are credit-based and often require a cosigner.
Yes, certain lenders allow the borrower to apply for cosigner release after they have made a certain number of on-time payments and met credit requirements.
