Most college students pay for their education in one of three ways: federal loans, private loans, or through family. But whether or not your family is able to help you cover the costs of your degree, there is one major step they can do to help; they can cosign your student loan.
While not a necessity, having a cosigner greatly helps your chances of qualifying for a student loan and can significantly reduce your interest rate, saving you thousands of dollars overall.
Cosigner for federal loans
In general, a federal student loan does not require a cosigner as it is the federal government that guarantees the loan.
However, there is one minor exception. If don't have a great credit score, you may need a cosigner when you apply for a Direct PLUS student loan. The co-applicant for this type of loan is referred to as an endorser, which is essentially the same as a cosigner.
A Direct Plus loan is a type of federal loan that can be used for graduate and professional degrees and can also be used by parents to pay for their children's education. To learn more about Direct PLUS loans and to check if you qualify, visit the Federal Student Aid website directly.
Qualifying for a Federal Student Loan
To qualify for a federal student loan and avoid the need for a cosigner, you must meet the following criteria:
• You must have a high school diploma or GED.
• You must be enrolled or accepted to a school that offers an eligible degree or certificate program.
• You must be a citizen of the United States
• You must demonstrate financial need.
• You must maintain a minimum grade point average and satisfactory progress toward the completion of your chosen program.
If you do not qualify for a federal student loan, there are other options which do likely require a cosigner. Let's take a look at how a cosigner can help you when it comes to private student loans.
Cosigners for Private Student Loans
When you apply for a student loan from a private lender (non-government) you will likely face the same obstacles as you would for other types of loans. If you have a good credit score, an income, and have shown an ability to pay bills on time (credit cards, car lease, etc.), you will likely qualify for a student loan on your own and a cosigner won't be a necessity.
However, according to the Consumer Financial Protection Bureau and the United States Department of Education, more than 90% of student loans issued have a cosigner. Many of these students use a cosigner because they would simply not qualify for a loan without it. Others though, don't necessarily need a cosigner but use one anyways in order to benefit from better loan terms.
Advantages of Using a Cosigner
The need for a student loan cosigner does pose some problems but there are some advantages if you have a cosigner on your loan.
• You will likely qualify for a bigger loan.
• Your loan application will be processed and approved much faster
• Your interest rate may be much lower than it would otherwise
• You may qualify for flexible terms that allow you to pay back only small amounts while still in school
Disadvantages of Using a Cosigner
• You can damage your cosigner’s credit if you do not make your payments on time.
• Your cosigner will be liable for your debt if you are unable to pay your loan.
• Your lender may not agree to release cosigners from liability, even if your credit improves.
So before you decide what type of student loan to apply for, and whether or not to use a cosigner, it is a good idea to look at your current credit score and examine your options from there. Remember that if you do use a cosigner it should be someone you absolutely trust and who trusts your ability to pay the loan back, on time.