If you've never borrowed money before, or if you’ve had credit problems in the past, you may not have the necessary credit history to qualify for a private student loan. That's why you may want to consider asking someone with a solid credit history to be your cosigner. A creditworthy cosigner can help give you advantages that might not be available if you try to borrow a private student loan on your own:
There’s a greater chance of having the loan approved
Private student loans are “unsecured” loans. That means you aren't putting up collateral, like a car or home, so the lender relies solely on your legal promise to pay back the money you borrow. If you can’t get approved on your own, a creditworthy cosigner may help you to become approved on the basis of his or her credit rating, because the lender will have another person’s additional promise to help pay back the loan. It’s important to keep in mind that you and your cosigner are equally liable to repay the money you borrow.
You may qualify for a lower interest rate and lower fees
Just like the price of a car is more than it cost the manufacturer to make it, interest and fees are the price you pay for the money you borrow. Since a creditworthy cosigner provides a safer bet that the money you borrow will be repaid, he or she may help you qualify for a lower interest rate and origination fees. That means you’ll pay less over the life of the loan.
An opportunity to establish a credit history
If you don’t have the requisite credit history to get approved for a private student loan without a cosigner, you can begin to establish a solid credit history when you repay your cosigned loan successfully without missing or being late on payments.
Who should you ask to be a cosigner?
A creditworthy cosigner is someone who wants to see you succeed, and who has good or excellent credit as well as the ability and willingness to repay the loan. Consider asking:
- A parent
- A relative, such as a grandparent, aunt, uncle, or cousin
- An individual who is supportive of — and believes in — your higher education goals
Still not sure? Consider this: Who's the first person you'd invite to your graduation? That person might be the one you ask to be the cosigner. You might want to show this article to the person you ask to be your cosigner. Make sure that she or he understands that cosigning is not only a commitment to your higher education, but also a commitment to repay the loan in the event that you fail to do so.
If you're considering cosigning a private student loan
Being a cosigner on a private student loan is a legally binding commitment to pay if the person for whom you’ve cosigned does not. Here are five tips to consider:
- 1. Make sure you are financially able to handle the loan payments if the student borrower does not — and make sure you understand that if the borrower does not make timely payments, there are consequences for your credit
- 2. Ask the lender if you, the cosigner, can be released from the responsibility of repaying the loan after a certain period of time has elapsed and the student has graduated and demonstrated the ability to repay as a sole borrower
- 3. Encourage the student borrower to make monthly payments on time to avoid late fees and keep overall loan costs to a minimum – and to contact you immediately should he or she run into difficulty
- 4. Ensure that the lender has the student borrower’s current contact information
- 5. Suggest that the student borrower repay the interest on loans while he or she is in school; this reduces the amount that must be repaid later, and reinforces the positive habit of making on-time payments