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Many college students rely on student loans to help pay for their education. Since most federal student loans don’t require a credit check or cosigner, they’re the go-to first option for students who need to borrow.
But if your child’s federal student loans don’t cover all their costs and they need to turn to private student loans, credit will matter. And, since most college students have little credit history, they might need a cosigner to secure a private student loan.
Here’s what you need to know about cosigning student loans:
- Are parents required to cosign student loans?
- Advantages of parents cosigning student loans
- Risks for parents cosigning student loans
- Student loan options without a parent cosigner
- Is a parent loan or cosigning a student loan better?
Are parents required to cosign student loans?
Most federal student loans don’t require a cosigner or credit check. However, a graduate student with adverse credit history may need a cosigner (also called an endorser) to qualify for a federal Grad PLUS Loan.
Private student loans are different. Most private lenders will consider a borrower’s credit history and income. If your student has little to no credit history and doesn’t meet a lender’s income requirements, it’s likely they’ll need a cosigner to qualify for a private student loan.
Before you agree to cosign your child’s student loans, you should understand the pros and cons.
See More: What Is a Parent Plus Loan?
Advantages of parents cosigning student loans
If your child needs to fill a funding gap with private student loans, acting as their cosigner can give them significant advantages.
- Improves the odds of approval: If your child has a thin credit history or negative marks on their credit report, they may not qualify for a private student loan without having a cosigner. Of course, approval isn’t a guarantee. A borrower can still be denied a student loan with a cosigner if the person cosigning the loan also doesn’t meet the lender’s credit requirements.
- Access to lower interest rates: Loan interest rates are generally based on credit history. If you have good to excellent credit and you cosign the loan, your student may have access to lower interest rates and, therefore, lower monthly payments.
- Help your child build credit: If your child needs a cosigner on their student loan, chances are they either have a poor credit history or not much credit history at all. Opening a student loan (with your help) and paying it off over time can help boost their credit, which will help set up their finances for the future.
- Possibility of being removed from the loan later: Just because you cosign a loan doesn’t mean you’ll be on the hook forever. Your child could refinance the loan later to remove you. Additionally, many lenders offer a cosigner release after the primary borrower has made a certain number of on-time payments.
Risks for parents cosigning student loans
Many parents automatically agree to cosign their child’s student loans without really considering the risks. Unfortunately, as much as you may want to help your child through college, agreeing to cosign their loans has some downsides:
- Responsible for payments if the cosigner defaults: By cosigning a loan, you’re agreeing to repay it if the other borrower doesn’t. Unfortunately, it’s impossible to determine what your child’s earnings will be when they graduate. If your child can’t make their loan payments after college, you’ll be on the hook for them.
- Impact on your credit and debt-to-income ratio: Even if your child does make their loan payments, cosigning the loan will affect your credit and debt-to-income (DTI) ratio. First, your credit score could go down by increasing the amount of credit you’re using. And if you qualify for other loans, such as a mortgage, your cosigned student loan will count as a debt payment when a lender calculates your DTI ratio.
- Potential to harm relationships: No one wants to think that cosigning their child’s student loans could ultimately harm their relationship, but it’s a possibility. If your child fails to make their payments and you end up having to pay them, it could strain your relationship.
Student loan options without a parent cosigner
Most federal student loans don’t require a cosigner.
To qualify for federal student loans, your student must complete the Free Application for Federal Student Aid (FAFSA), where they’ll share information about your family’s personal finances.
The information your student provides when completing the FAFSA depends on whether they’re a dependent or independent student. Students are automatically considered to be dependent unless they’re 24 years old or meet one of many other criteria, including:
- Being married
- Working toward a master’s or doctorate degree
- Having dependent children
- Serving in the armed forces
- Being emancipated
- Having deceased parents
- Being in foster care
- Being an unaccompanied youth.
Independent students only have to provide information about their own income and assets on the FAFSA. But dependent students must provide the same information for their parents, whose assets will be taken into consideration when determining how much aid the student qualifies for.
Based on the information students provide on the FAFSA, they may be eligible for three different types of student loans:
|Direct Subsidized Loans||
|Direct Unsubsidized Loans||
|Direct PLUS Loans||
3 best private student loans without a cosigner
Students are more likely to need a cosigner with a private student loan, but that isn’t always the case. Some private loans are available to students without a cosigner, and possibly even students with low credit scores or thin credit histories.
Students should consider a few points before taking out a private student loan without a cosigner. Having a cosigner can make it easier to qualify and often get better interest rates. Applying without a cosigner could increase their chances of being denied or increase the interest rate they’ll pay.
Before they apply for a private student loan without a cosigner, students should shop around and consider options from as many lenders as possible to find the right loan for their situation. Credible makes this easy — students can compare prequalified rates from our partner lenders below that offer student loans without cosigners in just two minutes.
|Lender||Fixed Rates From (APR)||Variable Rates From (APR)||Loan amounts||Credit score|
|3.15%+||1.73%+||$2,001 to $400,000||540|
|5.25%+8||2.92%+8||$1,001 up to 100% of school certified cost of attendance||670|
|4.89%+||N/A||$1,500 up to school’s certified cost of attendance less aid||670|
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Is a parent loan or cosigning a student loan better?
One type of student loan the federal government offers is a Parent PLUS Loan, which is available to parents of undergraduate students. Unlike other types of federal loans, the student isn’t the borrower — the parent is.
Parent PLUS Loans come with some advantages, including giving the child access to more money to pay for school. But the parent is the primary borrower and is the only one responsible for repaying the loan. Even if your child agrees to help repay the loan, they won’t be responsible in the eyes of the lender. If they don’t make the payments, you’ll be the only one negatively affected.
Keep Reading: 2 Student Loan Options For Parents With Bad Credit
Whether you’re the borrower or cosigner, Credible makes it easy to compare rates from multiple private student loan providers without affecting your credit score.