Whether or not you need a cosigner for a student loan depends on several factors, including the type of loan, the borrower’s credit history, and the policies of the individual lender. This article provides an overview of what a cosigner is, how cosigner requirements vary by loan type, the advantages of applying with a cosigner, and key considerations for borrowers who choose to do so.
What is a Cosigner?
A cosigner is a creditworthy adult who signs onto a loan alongside the primary borrower, essentially sharing legal responsibility for the full amount owed. This practice, known as cosigning, is common in situations where the primary borrower has little to no credit history or a poor credit record.
Cosigners are most often a parent, grandparent, or legal guardian, though any qualifying family member or trusted adult may serve in this role. Most lenders require cosigners to be United States citizens with a demonstrated steady income and good credit history.
By cosigning a loan, the cosigner assumes joint liability for the debt. Should the primary borrower fail to make payments, the lender is legally entitled to pursue repayment from the cosigner.
Cosigner Requirements by Loan Type
Your financial situation and the type of loan you’re taking out will ultimately determine whether or not you’ll need a cosigner.
Federal Student Loans
Federal student loans generally don’t require a cosigner because they don’t involve a credit check during the application process. Because creditworthiness is not evaluated for most federal loans, students with no established credit history are not required to have an adult cosign on their behalf.
The only exception to this is Federal Direct PLUS Loans, which include:
- Parent PLUS Loans – Federal loans that eligible parents may take out to help finance their child’s undergraduate education.
- Grad PLUS Loans – Federal loans available to eligible graduate and professional students to help cover the cost of their education.
Unlike most federal loans, PLUS loans do require a credit check. Applicants must not have an adverse credit history to qualify. Those with credit issues may still be eligible for a PLUS loan, but are required to complete PLUS Credit Counseling. Borrowers can also file an appeal requesting further review or may obtain an endorser, which is the federal loan equivalent of a cosigner, to satisfy loan requirements.
Private Student Loans
Unlike federal loans, the majority of private student loans do require a credit check to evaluate the applicant’s financial history and assess creditworthiness.
This credit evaluation is the primary reason many student borrowers need a cosigner. Students applying for loans directly out of high school often lack an established credit history and don’t have a stable income. Without a financial history, private lenders are generally unable to assess the risk of lending to a student borrower and will typically require a creditworthy adult to cosign the loan.
Even borrowers who do have some credit or financial history may still need a cosigner in the following circumstances:
- Borrowers with a low credit score
- Borrowers without a stable income
- Borrowers with a high debt-to-income ratio
When a Cosigner May Not Be Required for a Private Loan
Certain borrowers may qualify for a private student loan without a cosigner. For example, students who took time between high school and college to build credit, earn income, and establish a financial history may meet a lender’s creditworthiness standards independently.
Even student borrowers who can qualify without a creditworthy cosigner should consider adding a cosigner to help them achieve a lower interest rate.
Loans for International Students
International students seeking private loans to finance undergraduate or graduate education in the United States will generally need a cosigner. Each lender will have their own set of criteria, but will typically require cosigners to be U.S. citizens or permanent residents.
Benefits of Applying With a Cosigner
In addition to meeting lender requirements, there are several advantages to applying for a student loan with a cosigner, even for borrowers who may qualify independently.
Higher Approval Rating
Applying with a creditworthy cosigner generally increases the likelihood of loan approval and may offer you a lower interest rate.
3 out of 4 approved Abe® applicants have a cosigner.
Lower Interest Rates
A cosigner with a strong FICO score and steady income may help you secure a lower rate, since they share responsibility for the loan. A lower interest rate reduces both the monthly payment amount and the total cost of the loan over its repayment period.
Credit Building
For borrowers with no credit history or a limited financial record, a student loan cosigned by a creditworthy adult provides an opportunity to establish or improve credit. Consistent, on-time payments over the life of the loan demonstrate creditworthiness to future lenders and can positively impact the borrower’s credit score. A strong credit history can improve a borrower’s eligibility and rate terms for future loans, including those for vehicles and real estate.
Since students are often in school for multiple years, establishing credit early during your college career can also result in lower interest rates when borrowing private loans for future years of college and graduate school.
What to Know About Having a Cosigner
Who Can Be a Cosigner
Many student borrowers turn to their parents when looking for a cosigner. If you can’t ask your parents for help, or if they aren’t qualified to be a cosigner, you have other options. Cosigners can be any guardian or family member, like a grandparent, aunt, or uncle. You could also ask a mentor or trustworthy adult in your life. It is important to note that the cosigner is legally responsible for the debt, and any missed or late payments can negatively affect the cosigner’s credit.
Cosigner Release
Applying for a student loan with a cosigner doesn’t mean they have to stay on the loan forever. Many lenders offer a cosigner release option, which allows the cosigner to be removed from the loan after certain conditions are met — typically a defined period of on-time payments that demonstrates the primary borrower’s financial capability to manage the loan independently. The specific terms of cosigner release vary by lender; some may offer release after only 12 months of on-time payments, while others require the borrower to reach a midpoint in the repayment period.
Learn More About Applying With a Cosigner
Cosigners are great options to consider when applying for your student loans, whether you need one to get approved or are just looking to secure a better interest rate. If you want to learn more about applying for an Abe® student loan with a cosigner, contact us or find your rate online.