Students looking to qualify for loans with lower interest rates will often add a cosigner — often a parent with a more established credit history — to their loan. A co-signer can help borrowers improve their chances of being approved for, or get lower interest rates on, their student loans.
But remember — by signing on to the loan with the borrower, the cosigner is agreeing to shoulder the responsibility of paying off the loan if the borrower is unable to repay it.
Read on to learn more about when you might need a cosigner and what to do if you don’t have access to one.
Who can be a cosigner on a student loan?
A co-signer can be a spouse, relative, parent, or any adult who is a U.S. Citizen or Permanent Resident Alien and has a stable credit history and a strong credit score.
A cosigner takes on just as much responsibility for repaying the student loan as the primary borrower does, and is equally affected by any missed payments. As such, it’s important that there is a strong, positive relationship between the borrower and the cosigner.
If you are unable to repay your loan, your cosigner essentially agrees to take on payments on your behalf, so make sure you and your cosigner share a mutual trust.
Do you need a parent to cosign a student loan?
It is possible to take out student loans without your parents, or any other cosigner.
When you take out student loans, you can opt for federal student loans or private student loans. Generally speaking, you should take out as much as you need in federal loans and scholarships before turning to private loans.
You can apply for federal loans just by filling out the FAFSA — you do not need a cosigner and you won’t have to undergo a credit check.
Private loans, on the other hand, can be difficult to qualify for, since you must be able to demonstrate that you have the ability to pay off your student loans, that you have strong credit, and that you’re a U.S. citizen.
While it is possible to qualify for a private student loan without a co-signer, adding a co-signer can improve your chances of being approved or get you better rates, especially if you have a limited credit history.
How do I get student loans if my parents make too much money?
Some federal student loans, like Direct Unsubsidized loans, don’t require you to demonstrate financial need, so you can borrow more in unsubsidized loans than you can in subsidized student loans.
Unsubsidized student loans begin accruing interest from the date of your first loan disbursement, though you’re not required to pay that interest until you finish school. When you graduate, the amount of interest that accrued during your education is simply added to the principal loan amount and you begin paying off that new amount.
Additionally, unsubsidized federal student loans are available for both undergraduate and graduate students.
How can I get a student loan without a cosigner?
Federal student loans (except for PLUS loans, if the borrower has an adverse credit history) do not require a cosigner. However, you need to fill out the FAFSA in order to apply for federal student loans, and you may require some help from your parents to fill out the FAFSA if you are a dependent.
Here are some of the different federal loan options you can consider:
| Type of federal loan | Pros | Cons |
|---|---|---|
| Direct subsidized loans (also known as Stafford loans) | • Based on the student’s financial need • You don’t pay interest while you’re still in school at least halftime • A six-month grace period after graduation, meaning that any interest that accrues during your college career and six months afterward is completely paid for | • Only available to undergraduate students. • You can defer your student loans, but if you wish to put your loans in forbearance interest will still accrue during this time |
| Direct unsubsidized loans (also known as Stafford loans) | • You are not required to demonstrate financial need so the amount you can take out is higher than what you can take out with a subsidized student loan • Available to undergraduate and graduate students | • Interest begins accruing immediately, from the date of your first loan disbursement, though you’re not required to pay that interest until you finish school |
| PLUS loans | • Available for graduate students, as well as parents of dependent undergrads • You can take out all the PLUS loans you need to up to your school’s certified cost of attendance | • Interest rates on PLUS loans will be 7.0 percent starting July 1, 2017. On top of that, PLUS loans carry a 4.3 percent up-front disbursement fee |
Disadvantages of receiving student debt without a guarantor
You can apply for federal loans without a cosigner, but if you’ve hit your federal loan limits or need to turn to private loans to cover any additional educational expenses, adding a cosigner can often be your best bet.
The primary benefit of adding a cosigner is that you’re more likely to be approved for your loan and/or to get a better interest rate. This is especially true for borrowers with a limited or poor credit history.
Getting a lower interest rate can mean that you won’t have to pay quite as much in monthly loan payments and can save you money overall. With private student loans, monthly payment and overall repayment costs depend on the type of repayment plan the borrower selects.
While you can still try to apply for private student loans without a cosigner, keep in mind that you will need a solid credit history and good credit score (usually around 650 and higher) to qualify.
How to improve your chances of being approved for an educational loan
Lenders take into account a number of factors when evaluating your eligibility for a loan. Lenders need to be sure that you’ll be able to repay your loan in time, so they require that you have a steady income. If you’re unemployed or are just starting out at a low-paying job, you might need to boost your income by budgeting and saving money before you apply for a loan.
You also need to be able to show proof of income when you apply for a loan, so if you just graduated from college, or you’re otherwise unemployed, you might need to hold off on applying for a loan.
Your debt-to-income (DTI) ratio is also an important factor. This is calculated by dividing your total monthly debt by your total gross income. Because your DTI takes into account your monthly debt, paying down debts quickly can help lower your DTI.
You should also take a look at your repayment history before applying for a loan. If you have any dings in your credit history, paying down your existing debt and making sure that you always make on-time payments can help you improve your credit and improve your chances of being approved for a loan.
Building credit before you apply for a private student loan
Your credit score is one of the most important factors that lenders consider when you apply for a private student loan. In order to be approved, most lenders require you to have a good credit score and a clean credit history.
If you have a limited credit history or a low credit score, it’s best to try and build up your credit before applying for a loan.
Some of the easiest ways to begin building credit are to ask a parent to add you as an authorized user on one of their credit cards or to apply for a secured credit card yourself. Secured credit cards let you deposit a certain amount of money that you can then borrow against — similar to a debit card.
It’s also important to keep an eye on your credit. If you ever see any errors on your credit history, make sure to dispute them and get them removed from your report. If you’re careful about paying down your debt quickly and always making timely payments, your credit score will improve over time.
Student loans with a cosigner
Generally speaking, only private student loans require a cosigner in certain situations, while federal loans do not. If you have a limited credit history or have delinquent payments in your past, you will most likely need a cosigner.
Because your cosigner backs up the loan repayment on your behalf, you often receive easier loan approval and better interest rates compared to applying without a cosigner. The stronger the borrowing profile (i.e. higher credit and income) of your cosigner, the higher the likelihood that you will receive a lower interest rate.
If you’re considering cosigning a student loan for a child or relative, remember that cosigning a student can affect your credit.
Do student loans affect a cosigner’s credit score?
Yes. A co-signer accepts the responsibility of paying off the loan in case the primary borrower is unable to, so the loans will appear on the cosigner’s credit history.
If the borrower misses any payments or defaults on the loan, these will also appear on the cosigner’s credit history and may impact their ability to qualify for loans in the future. Lenders will also consider the co-signed loan as part of the cosigner’s overall debt when considering them for future loans.
How to remove a cosigner from a student loan
Some lenders will offer you the option of releasing the cosigner by signing a cosigner release when you are eligible, which usually takes 12 to 48 months of consecutive on-time payments and an income minimum. You may also need to undergo a credit check before your cosigner can be released.
If you want to remove a cosigner from your student loan, check to see if you meet your lender’s requirements for cosigner release.
You can also release your cosigner by refinancing your student loans. When you refinance your loan, you’ll essentially be paying off your old loan and obtaining a new one without a cosigner. Visit Credible to learn more about the best student loan refinance options available.
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