5 Things to Consider Before Seeking a CosignerEmail This Article
A good cosigner for private student loans will:
- Have a history of making on time payments
- Have a good credit score
- Have stable employment
- Understand the responsibility they are taking on
- Not have a recent bankruptcy
Let’s break down this list and look at each item individually, and how each affects you and your cosigner.
History of Making on Time Payments
Your cosigner should have a history of paying their bills when due. Past due bills can ding your credit and make your cosigner less desirable to potential lenders. If you think you will be unable to make a payment, contact your lender AND your cosigner immediately. Your lender may have short-term options to help you stay current (like decreasing or temporarily postponing your monthly payment).
Your cosigner is equally responsible for the loan. If you miss a payment, this could affect their credit score. Make sure they know if you are having financial difficulty, so they can help you with potential solutions to help maintain both of your credit scores.
Have a Good Credit Score
If you don’t qualify for a student loan on your own, then you’ll need to seek a cosigner. For the best chances of approval and to receive the best possible interest rates, you should seek a cosigner with a high credit score and a strong credit history. Paying your loan on time can also help strengthen your own credit score.
One of the variables that lenders look at is employment history. Many students need a cosigner because a) they are not currently employed or b) they don’t have a lengthy history of gainful employment. A good cosigner will have at least two years of steady employment. As you establish your own history of stable employment, this can help you make your payments on time and put you in a position to eventually release your cosigner from their obligation (if your chosen lender offers this option), or refinance your private student loans into your name only.
What Does It Mean to Cosign?
It’s vital that you and your cosigner both understand you are equally responsible for the loan. The idea behind having a cosigner is essentially that, if the borrower can’t afford to make their payments, the cosigner will make them. Missed payment will ding the credit report of both you and your cosigner.
No Recent Bankruptcies
If you or your cosigner have a bankruptcy on your credit report, it is highly unlikely you will qualify for a private student loan. With that in mind, if you are considering becoming a cosigner for someone else, it is important to note that private student loans are nearly impossible to discharge in bankruptcy. If the borrower cannot, or does not, repay the student loan, the cosigner is equally responsible. Filing for bankruptcy will not dismiss the student loan debt.
Whether you need a cosigner, or you are considering cosigning for someone else, it is important to understand the commitment. Interested in more information on how private student loans work? Visit our Must Reads for more information.