Do You Need a Cosigner for a Student Loan?
If you’re planning to get a private student loan, chances are high that you’ll need a creditworthy cosigner to get approved. Even if your credit is great, adding a cosigner can help you get a lower interest rate — saving you money.
Note: If you’re not a U.S. citizen or permanent resident, you may still be eligible for a student loan but you may require you to find a U.S. citizen or permanent resident to cosign the loan.
If you’re looking to borrow a federal student loan, most loans will not require a cosigner. There is one exception, a federal Direct PLUS Loan. A PLUS loan is the only type of federal loan which will require a credit check, and possibly a cosigner. If you’re denied a PLUS loan because you have adverse credit you will have the option to file an extenuating circumstances appeal or to apply with a creditworthy cosigner.
What is a Cosigner on a Student Loan?
A cosigner is someone with a strong credit and employment history who agrees to be equally responsible for your student loan. Most undergraduate students will need a cosigner on a private student loan because they do not meet the minimum credit and work history requirements. Lenders are looking for assurance that the borrower (you) will be able to repay the loan, and they need see a track record that includes at least a couple years of employment or earnings, plus a strong FICO® score.
Essentially, the idea behind having a cosigner is the lender has another way of ensuring they get their money back. If the borrower can’t or doesn’t make the payments, the cosigner will jump in to help repay the loan. You should also know that missed or late payments will ding both credit reports. Ultimately, the cosigner is just as responsible for repaying the loan as you are.
Who Can Cosign a Student Loan?
Each lender will have their own requirements, but generally speaking, any adult U.S. citizen or legal permanent resident with strong credit can cosign a student loan. “Strong credit” is determined by each lender but it is pretty standard to see a minimum FICO score requirement of 680, along with an absence of things like bankruptcy, foreclosures, liens, and student loan defaults. A track record of on-time payments and a strong debt-to-income ratio are also vital. It’s common for cosigners to be parents, grandparents, an aunt or uncle, or in some cases a spouse.
How to Find a Cosigner for a Student Loan?
When you ask someone to cosign a loan, you’re asking them to fully share the responsibility of your student loan with you. If you don’t pay on the loan, they will be held responsible for the debt. Understanding what you are asking someone to do when they cosign a loan is very important. It’s a pretty big ask.
Because of this, it’s common for students to reach out to close family and friends first. Of course, not everyone has this option available to them. Some students reach out to people in their communities, such as church members, or members of other organizations they are involved in.
If you are a college junior or senior with good grades, you may qualify for a non-cosigned loan from a lender like Ascent.
What Does a Cosigner Need for a Student Loan?
Cosigners need to meet the lender’s citizenship and credit criteria to qualify for private student loans. This includes having a strong credit score, a low debt-to-income ratio, proof of income and earnings history, and no adverse line items on the credit profile (example: bankruptcy). Of course, each lender’s underwriting criteria will vary and some will be stricter than others.
The other thing that cosigners need is a high degree of trust in the student borrower. On whose behalf are you are agreeing to cosign the loan? Your son or daughter? Niece or nephew? Child of a family friend that you’ve known for a few years, but do not have a good understanding of how responsible that person may be with finances, let alone their likely ability to repay this loan after graduating? Cosigning a loan means putting a lot of confidence in the primary borrower, and knowing you will have ongoing means of communicating with him/her should issues arise. For example, if you cosign a loan for Sue can you say with certainty that Sue will be in touch with you regularly once she moves to another city? If the lender calls you to locate Sue, will you be able to say where to find her? Remember that you are on the hook for payments if Sue drops the ball. So even if the lender cannot find her, it’s important that you know how to track her down so you can avoid being the only one responsible for paying the loan and protecting your credit.
Lastly, cosigners need to feel comfortable with the dollar amount of the loan you are being asked to sign. If you put imagine yourself being solely responsible for this loan, is it an amount you could reasonably afford if the primary borrower cannot pay? If not, you may want to reconsider.
Does Cosigning a Student Loan Affect Credit?
Yes. Cosigning a loan will affect the cosigner’s credit. Because a cosigner is a co-borrower, the loan will be reflected on their credit report. This will affect the cosigner’s debt to income ratio, and any missed payments will be reflected on their credit history.
Can I Cosign a Student Loan With Bad Credit?
The short answer is no. Typically, individuals with bad credit do not make good cosigners and will likely not meet the lenders’ minimum requirements. You would find out—pretty quickly—that having a poor credit score or adverse credit history will disqualify you. If you are denied, the student can certainly resubmit the application with a new cosigner. When in doubt, you can always contact the lender for additional details about qualification criteria. And remember that if you are denied, you are also entitled to a free copy of your credit report so you can review your history for yourself. This will allow you to uncover what may be leading to the denial (after all, it could happen again in another scenario), or to help you challenge any erroneous information contained in your credit report.
Lenders do not usually consider it a negative for the student to have no credit history, or even a thin credit profile. But they would certainly expect the cosigner to have a solid credit history. There are only a few lenders that offer non-cosigned student loans, which may be an option depending on the student’s academic level. Check out our comparison table to shop around.
Finding a Cosigner: 5 Qualities to Look For
1. Have a Good Credit Score
Most students need a cosigner because they don’t have a lengthy employment or credit history. Your cosigner should have a history of steady employment, and a history of paying their debts on time.
Lenders aren’t just looking for someone else to share the responsibility of the loan, they are looking to be paid back, so they want to loan money to people who have a proven history of managing their debts and financial obligations. And this isn’t limited to just credit cards, a mortgage or student loans. Things like late rent, utility bills, and unpaid medical bills can show up as negative items on a credit report as well.
Ideally, your cosigner will have no current or recent negative items on their credit report.
2. Have Stable Employment
Lenders want to know that the people they are loaning money to have the ability to earn. Most lenders look for at least two years of employment history. While some students may have this, most traditional students still don’t earn enough on their own, or don’t have a long enough credit history to apply without a cosigner. This also means your cosigner should be able to demonstrate stable employment.
3. Understand the Responsibility of a Cosigner
This may sound like a broken record, but we can’t emphasize it enough. Your cosigner shares 100% responsibility for your loan. If either of you do not pay the loan it will affect each of your individual credit histories. This is why cosigners are often parents or other close family members.
This obligation will tie you to your cosigner until the loan is paid off (or until you refinance your loans to remove the cosigner). Some lenders offer cosigner release when the primary borrower has made a certain number of on-time payments (typically 24 to 48 months). This is important, because some student loans offer repayment terms up to 20 years or more, depending on degree type.
Cosigners should be aware of the following:
- Total amount being borrowed
- The expected monthly payment
- Payment due dates
- Cosigner release terms and conditions (if applicable)
4. Have the Ability to Make the Monthly Payments
Your cosigner should have the ability to step in and make payments, if needed. That is why it is incredibly important for your cosigner to understand the loan that is being borrowed. If you provide them with an estimate of the monthly payment amount, it should be an amount they can afford.
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). Note too, if your cosigner says they will pay the bill and then doesn’t, that will ding your credit as well as their's (remember, you are both sharing the responsibility equally). Your cosigner should be someone you trust.
5. No Recent Bankruptcies
Lenders want to work with borrowers who have a good credit history. A recent bankruptcy on your cosigner’s credit report will make lender approval highly unlikely. If the person you are planning to ask to cosign your loan has a recent bankruptcy, you will probably need to find a new cosigner in order to qualify.
What to do next?
Building Your Credit as a College Student