Will You Need a Cosigner on a Private Student Loan? What You Need to Know
Getting student loans without a cosigner can sometimes be difficult. While federal loans don’t usually require a borrower to have a specific level of creditworthiness, private loans do.
And it’s often very difficult to fund your student’s education with federal loans alone.
Understanding what cosigners are can help you decide if it’s best for your student to have a cosigner, or if it’s even possible for him or her to look for student loans without a cosigner.
Why Are Cosigners Needed?
Any time a bank gives a loan, there’s a chance it won’t be repaid. After the financial problems that happened in 2008 – 2010, banks became much more conscious of the consequences of bad loans.
As a result, banks became more focused on finding creditworthy borrowers, even for student loans. Sometimes this means a bank simply gives fewer – or no – student loans. More often, however, they simply look for extra assurance that the loan is worth the risk.
Sometimes this extra reassurance takes the form of higher interest rates or expensive fees. Frequently, these fees and rates can be lowered if there’s a more creditworthy person attached to the loan – a cosigner.
In the current environment, it can be very difficult to find private student loans without a cosigner.
What Does it Mean to Have a Cosigner?
Some students think that a cosigner is no big deal. They assume the person is just a backup, and since they don’t expect to have problems, they figure anyone can cosign.
That’s not the case. Not only does a student need a person with an excellent credit history to cosign a private loan, but that individual is now connected to the loan for years to come.
A student loan “counts against” a cosigner by showing as an existing debt on their credit report. This can impact income to debt ratios and the person’s ability to get other loans they need.
In addition, if the student has problems making the payment, the cosigner is immediately liable. And, as we all know, things happen.
In some cases, the bank may offer a cosigner release after a certain number of payments are made. If a cosigner can’t be avoided, look for a loan that includes this type of release provision.
Finding Student Loans Without a Cosigner
Because of the risk and credit rating impact, folks with excellent credit are understandably reluctant to cosign someone else’s loan. Fortunately, there are ways to find student loans without a cosigner.
Build a Credit Rating
While this can be difficult for students who are just starting out, it can be done if a student waits a few years to begin college. Of course, ideally, it would be preferential to make sure your child begins to build his or her credit before they reach college.
Sometimes the best option is for your student to work for a while, build a credit rating, and attend college when he or she is surer of what they want to do.
A lot of parents are nervous about this route, because they think their child may not attend school at all. I can tell you that most people are not working in the field they have their degree in, partly because when they attended school they weren’t sure what they wanted.
Sometimes waiting is the wisest choice. It can help your student make clearer decisions and avoid wasting money by jumping from school to school and major to major.
Focus on Federal Student Loans
The easiest and best student loans without a cosigner are federal loans. Stafford Subsidized and Unsubsidized loans are a great resource and can cost significantly less over time than private loans.
If your student is in need of a loan, always exhaust federal loans first. Federal loans also have a variety of student protections that are helpful, such as income-based repayment, forgiveness options, and provisions for forbearance or deferment.
No Choice But to Accept Higher Interest Rates or Fees
If it’s important to have private student loans without a cosigner, you will probably have to accept higher interest rates or fees in return, if banks are even willing to consider a loan without a cosigner.
It can be frustrating to feel like you’re locked into years of higher payments, but if finding a loan without a cosigner is your only option, higher interest rates and fees may be unavoidable.
If you look into this option, it’s essential to shop around. A lot of lenders can review your student’s information and give you their best terms. You can compare these terms against each other to get the best rate.
To do a good apples to apples comparison of student loans, use our Student Loan Comparison Calculator to make sure you have all the data to make an informed decision.
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