It's very common for a student who needs a private student loan to have one or more cosigners. Parents, guardians, relatives or other trusted parties can help a student qualify for a loan or receive a lower interest rate. Before cosigning, it's important to understand exactly what you can expect.
Your cosigner is equally responsible for repayment of the full amount of the loan, not just part of it. Your cosigner can live in a different state than you. A student loan cosigner should be someone you know and trust, and who is willing to fill out the application on their own.
Indeed, more than 90% of private student loans include a co-signer who is equally financially and legally responsible for the debt, according to an analysis by higher education expert Mark Kantrowitz.
Since a cosigner shares responsibility for the loan, they need to show that they can manage the loan. This includes having good to excellent credit — usually a credit score of at least 670 or higher — as well as reliable income and a low debt-to-income (DTI) ratio.
If the cosigner has good credit, a stable income, and minimal debt, the student can often secure a far more favorable loan. Cosigners are most often parents, but not always. In some cases, friends, partners, or other relatives will cosign a student loan instead.
Some of the most common and important factors that cause someone to be denied for being a cosigner on a student loan may include: Having a low credit score or having a credit score that is below a certain threshold.
The responsibility can last as long as the loan term
Many lenders offer a cosigner release. If you are counting on being released from your obligation to repay the debt, pay careful attention to the requirements for obtaining this benefit.
Acting as a co-signer can have serious financial consequences. First, co-signers assume legal responsibility for a debt. So, if the primary borrower is unable to pay as agreed, the co-signer may have to pay the full amount of what's owed. Second, a co-signed loan will appear on the co-signer's credit reports.
This is premised on the idea that they find a cosigner with a stronger credit score that's good enough to help them qualify for the loans they need. Even if it costs them up to $1,000 upfront for a cosigner, a lifetime of higher earnings as a result of their degree could more than make up for the initial investment.
Federal student loans are the best options for borrowers without a cosigner. Private student loans without a cosigner are available but typically only for creditworthy borrowers. To be creditworthy is to have good to excellent credit score with a strong credit history.
Cosigning a student loan can negatively affect your credit score and debt-to-income ratio (DTI), making it harder for you to get approved for other lines of credit¹.
Good-to-excellent credit: Your cosigner is your backer, so it makes sense that they should have strong credit. An excellent credit score is best, but try to aim for at least good credit or above (so a score of 670 or higher). Steady income: Your cosigner has to make monthly payments on the loan if you can't.
Both Direct Subsidized Loans and Direct Unsubsidized Loans are offered to students regardless of their credit history and neither will result in a hard inquiry. A Direct PLUS Loan, however, does require a credit check, so if you're considering one, your credit scores may take a slight hit.
Co-signing a credit card for a friend or family member is a big leap to take and one that could hurt your credit score if the person you sign with doesn't pay the card payments on time.
Many parents have faith that if they cosign on a loan, their children will repay them once they graduate and get a job, but that's not always the case. If your child can't repay the loan, you're required to pay that debt, or you will be held in default and your credit standing could suffer.
You can still be denied, but only in rare circumstances, most of which will likely not apply to a first-time borrower. A borrower with a poor credit history or negative financial situations, such as bankruptcies or repossessions, will have a harder time getting approved for a loan—even with a good co-signer.
In fact, “more than 90 percent of private student loans for undergraduate students… require a creditworthy cosigner” according to Mark Kantrowitz of Cappex. There are several student loan cosigner requirements to look into.
The average credit score for approved Sallie Mae borrowers is around 748 for undergraduate student loans. That's pretty high – but don't panic if your credit score is much lower than that. You'll need a minimum credit score (or have a cosigner with a minimum credit score) that is somewhere in the mid-600s.
In many cases, things will remain the same despite the death of a cosigner, as long as you keep up with on-time payments. However, some private lenders require the total balance to be paid immediately after a cosigner passes away, even if you've been keeping up with the monthly payments on your own.
If your credit score is below 650, you're not likely to find a private lender who will approve an application to let you cosign student loan refinancing. However, this varies by lender (here are Earnest's* eligibility requirements), and credit is only one aspect of eligibility.
If you don't meet baseline eligibility requirements, or if you've previously defaulted on a loan, you may not be approved for a federal student loan. You must maintain "satisfactory progress" in school to be approved for student loans. You can take steps to regain or improve your eligibility for student loans.
Some, but not all, providers of private student loans let a borrower do this. Removal of a co-signer can happen only after the borrower has made a predetermined number of on-time payments on a private student loan and has met other requirements. Learn how to get a student loan co-signer release.