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Last update: January 12, 2024

7 minutes read

What is a Cosigner? Your Guide to Student Loan Cosigning

Do you know the responsibilities of a cosigner? Learn the pros and cons of having a cosigner and how to release a cosigner from a loan.

By Brian Flaherty, B.A. Economics

Edited by Rachel Lauren, B.A. in Business and Political Economy


Diving into the world of student loans? Getting student loans can be tough, especially private ones. Have you ever wondered why some people find it easier to get these loans? Well, here's the secret: having a cosigner can make things smoother. In this post, you’ll learn what a cosigner is and the benefits of having one.

Key takeaways

  • A cosigner is a creditworthy person who shares the responsibility of your student loan

  • Having a cosigner can boost your chances of loan approval and get you better interest rates

  • Both the student and the cosigner are equally responsible for loan repayments

    What is a cosigner?

    A cosigner is a creditworthy person who promises to share the responsibility of repaying a loan with the primary borrower. It doesn’t necessarily mean they are paying, but if you mess up, they are promising to step in.

    This person's solid credit background can be the golden ticket for students without much credit history to get approved for a loan.

    Why should you consider a cosigner for your private student loans?

    If you've ever tuned into a late-night talk show or scrolled through memes, you'd know that being young and in debt is pretty much the 21st-century version of "I walked uphill both ways in the snow to get to school." However, it doesn't have to be that insane.

    Private student loans are based on credit, and as a young scholar, you probably haven't had the time to build a credit history that screams, "Trust me, I'm good for it!" That's where a cosigner steps in to give your loan application the boost it needs.

    What’s the actual role of a cosigner?

    Let's break it down so you can fully understand their role in all this. A cosigner is someone who:

    1. Is a creditworthy adult.
    2. Signs the loan alongside you, vouching for your credibility.
    3. Shares the responsibility of repaying the loan.

    Who's eligible to cosign your student loan?

    • Parents are the usual suspects. But plot twist! Last year, 28% of Sallie Mae Smart Option Student Loan® cosigners were not the borrower's parents.

    • Relatives, guardians, spouses, or that super-rich friend from your calculus class? They're all in the game.

    • There's a "one cosigner per loan" rule. So if both of your parents are up for it, only one can step up to fill the role.

    What's on the line for cosigners?

    Cosigning isn't just a signature on a piece of paper. It's a commitment you need to honor. Here's the breakdown:

    • Both you and your cosigner are on the hook for payments. If you fail, they're the one responsible.

    • Missed a payment? That slip-up will mess with both your credit scores.

    • Some lenders let you release your cosigner after you've made enough on-time payments, showing that you’re a responsible adult now.

    How can having a cosigner impact your interest rates?

    You know that feeling when you score a great deal on tickets to your favorite band? Yeah, having a cosigner can be that good for your interest rates.

    Why does your interest rate matter?

    Do you like saving money? Well, the higher your interest rate, the more you’ll have to pay - interest rates are the extra charge on top of your loan's base amount. So, get a cosigner to save yourself some cash.

    Having a cosigner can lead to lower interest rates because lenders see it as a reduced risk. With a cosigner's good credit history, lenders are more willing to give you a good deal.

    Back when I was taking out a loan, I knew that I wouldn’t need a cosigner to get approved - but having one would definitely help my rate. Since my cosigner trusted me to repay everything in full and not hurt their credit, they were glad to help me save a ton of money.

    But what if you don’t have a cosigner?

    If you're riding solo without a cosigner, it's not the end of the world. You can still get a loan, but you might face higher interest rates. However, as you build your credit and show lenders you're responsible (yes, timely payments matter!), you can potentially refinance in the future for a better rate.

    How do I release my cosigner?

    Freeing your cosigner from the responsibility of your loan isn't some mysterious process. Here’s how it goes:

    1. Know your eligibility

    Start by checking if your lender even allows cosigner release. Some do, some don't. Know which camp you're in, and make sure you know before you take the loan.

    2. Make timely payments

    Most lenders require a certain number of on-time payments before they'll even consider a release. This is your chance to show them you've got your act together.

    3. Check your credit

    Your lender will do this, but it's good to know where you stand with your credit. It's like checking the weather before you go out. No surprises.

    4. Apply for the release

    Each lender has their own process. Some might ask for proof of income, others might want more details.

    5. Stay informed

    After you apply, keep tabs on the process. If the lender needs more info, give it to them. If they have questions, answer them. Be proactive.

    Before diving into the world of loans, it's important to know the dos and don'ts. Here's a useful table to guide you:

    Do

    • Do research your lender options

    • Do understand the terms of the loan

    • Do communicate openly with your cosigner

    • Do keep track of your credit score

    Don't

    • Don't skip reading the fine print

    • Don't miss payments

    • Don't forget to consider cosigner release

    • Don't hesitate to ask questions or get help

    Advantages and disadvantages of having a cosigner

    Applying for student loans can feel intimidating sometimes. Having a cosigner on board can help, but like everything, it has pros and cons. Let's break them down:

    Advantages of having a cosigner

    • Higher chances of approval: With their creditworthiness, getting that loan approval is easier.

    • Better interest rates: A cosigner might just get you a deal that's kinder to your wallet.

    • First step in building credit: It's like having training wheels as you start your path to building credit.

    • Financial backup: Knowing someone's got your back can be a huge relief in uncertain times.

    Disadvantages of having a cosigner

    • Shared responsibility: If you fail, your cosigner feels the pressure. Their credit can take a hit.

    • Potentially strained relationships: Money issues can strain personal ties. If things go bad, it could get awkward at family gatherings.

    • Less independence: You're financially dependent on them.

    • Release challenges: While releasing a cosigner is possible, it might require jumping through a few hoops.

    How TuitionHero can help you

    Thinking about getting a cosigner for your private student loans? At TuitionHero, we’ve got you covered. We help you get the best options personalized for you. Considering refinancing? We'll guide you through it. Need help with scholarships, FAFSA, or credit card offers? Yeah, we handle those too.

    By understanding your needs, we aim to make college finances simple. We're like your assistant, giving you guidance and support whenever you need it. So, why go at it alone when we're ready to have your back? Step into a future where college finances are easy with TuitionHero.

    Frequently asked questions (FAQ)

    Yes, there are alternatives like building your credit history, applying for loans with less strict credit requirements, or exploring financial aid programs. However, these options may vary depending on the type of loan and lender.

    In some cases, lenders may allow multiple cosigners, but each lender has its own policies. It's important to check with the specific lender to understand their requirements and whether they allow multiple cosigners.

    Removing a cosigner before the loan is paid off is challenging and often depends on the lender's policies. Discuss the option of cosigner release with your lender to understand the criteria and process involved.

    The cosigned loan will probably be considered as part of the cosigner's overall debt obligations when calculating their debt-to-income ratio. This can impact the cosigner's ability to qualify for other loans or financial products.

    Final thoughts

    Understanding what a cosigner does is important when dealing with loans. Whether you're a student or someone looking for financial help, a cosigner plays a big role in getting your loan approved. It's important to talk openly with potential cosigners and make sure they know what they're getting into.

    Keep in mind that a cosigner's credit and finances can be affected, so think carefully before asking someone to cosign for you. Make smart choices, explore other options, and handle loan agreements carefully for a strong financial future.

    Source


    Author

    Brian Flaherty avatar

    Brian is a graduate of the University of Virginia where he earned a B.A. in Economics. After graduation, Brian spent four years working working at a wealth management firm advising high-net-worth investors and institutions. During his time there, he passed the rigorous Series 65 exam and rose to a high-level strategy position.

    Editor

    Rachel Lauren avatar

    Rachel Lauren is the co-founder and COO of Debbie, a tech startup that offers an app to help people pay off their credit card debt for good through rewards and behavioral psychology. She was previously a venture capital investor at BDMI, as well as an equity research analyst at Credit Suisse.

    At TuitionHero, we're not just passionate about our work - we take immense pride in it. Our dedicated team of writers diligently follows strict editorial standards, ensuring that every piece of content we publish is accurate, current, and highly valuable. We don't just strive for quality; we aim for excellence.


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