Go to the homepage of any student loan provider and you’ll soon encounter the phrase “cosigner”.
A cosigner is obviously someone who cosigns your student loan. But when exactly do you need a cosigner? And what are the benefits of having one?
Read on for answers to all the questions you have about cosigners and more.
To understand when you need a cosigner, we must first know the difference between federal student loans and private student loans.
Federal loans are loans provided by the federal government. These loans don’t require a credit check and don’t require a cosigner. However, federal loans usually only cover part of your tuition and fees. For the rest of your tuition and fees, you’ll need a private student loan – and this is where a cosigner comes into the picture.
A cosigner can be anyone close to you – e.g., a parent, a close relative, a mentor, or a trusted friend – who agrees to put their name on your loan and to assume legal responsibility for paying off the loan if you are unable to.
There are three main benefits to getting a private student loan with a cosigner: it boosts your chances of getting approved for a loan, it boosts your chances of getting a better rate, and you can usually release the cosigner at a later date.
Getting approved for a loan. You’ll often see lenders promote the fact that borrowers with cosigners are 5-7x times more likely to qualify for a student loan than borrowers without a cosigner. They’re not joking. The biggest factor in getting approved for a private student loan (or any loan offered by a private lender, for that matter) is your credit score. And like it or not, most college students are at a stage in life where they have poor credit or no credit at all. The solution: a cosigner. When you bring a cosigner with strong credit, the lender assesses your application on your cosigner’s credit and not on your own credit. The result: a substantial increase in your chances of getting approved for the loan.
Getting a better rate. Having good credit might get you approved for a loan, but only borrowers with the best credit have any chance of qualifying for the top rates. Therefore, even if you have built up some sort of credit history for yourself, it may be worth bringing along a cosigner with better credit. If your cosigner has excellent credit, then you stand to qualify for the lowest private student loan rates – which currently start at 1.04% for variable-rate loans and 3.49% for fixed-rate loans. Having a cosigner with strong credit could save you potentially thousands of dollars in interest payments across the duration of your loan.
Cosigner release option. Most but not all lenders let you apply for a cosigner release after a certain amount of consecutive monthly payments (usually 12-24 months). You may need to demonstrate strong credit to qualify for the cosigner release. Upon approval, the lender will remove your cosigner’s name from the loan but you will continue to enjoy the low interest rates obtained with the cosigner’s credit score.
Students aren’t less likely to get approved without a cosigner because of lender discrimination. The real reason students face an uphill battle with lenders is because they tend to be young and lacking in financial history.
If your goal is to apply for a student loan with no cosigner, then you’ll need good credit – and having good credit begins with building a financial history for yourself.
Here are a few simple ways to build your credit score and apply for a student loan without a cosigner.
If you have little or no credit history, then a cosigner may be necessary to qualify for a student loan and receive a good rate. However, if you already have a financial history, then you may be in a position to apply for a student loan under your own name. Either way, remember that comparing private student lenders is key to finding the best one.