student loan advice | Cosigning For A Private Student Loan – Pro’s & Con’s

Cosigning For A Private Student Loan – Pro’s & Con’s

Cosigning For A Student Loan

Cosigning for a private student loan can be advantageous for the borrower or a pitfall for the cosigner. 

Private student loans are issued based on the borrowers credit. This means two things for those applying for a private student loan.

  • The loan will be based on the borrowers credit score
  • Normally, the better the credit score, the better the interest rate

What this means to you

Some students benefit by applying for a private student loan. The borrower must remember though, if he/she has a cosigner, the cosigner is just as responsible for repayment of the loan as the borrower is. By cosigning your name to a college loan, you’re guaranteeing that you will repay the college loan should the borrower fail to make payments.

A lower interest rate can mean that the borrower will have lower monthly payments. It can also mean the private student loan can be paid back quicker.

Who needs a cosigner?

Generally there are two instances when a consigner is needed or advantages to the borrower, even if the borrower has some credit.

One of these times is when the borrower does not have an established credit history which leads to a low credit score. Having a cosigner when applying for private student loans such as a Sallie Mae Signature Loan or even the Tuition Answer Loan may increase your odds of being approved.

The second instance where a co-signer would be advantageous is when trying to secure a private student loan with a lower interest rate. The difference in monthly payments on a $10,000 college loan can be $50 or more when comparing a 8% interest rate and a 12% interest rate. Also the difference in the accrued interest rate could be as much as $4900 over the life of the student loan. Food for thought before applying on your own if you have spotty or little credit.

Pitfalls To Look Out For

Having a cosigner can be very advantageous, but it can also have its drawbacks for both parties. Here are some things to consider before cosigning for a private student loan.

  1. Make sure if the borrower does fail to repay, that you can make the payments yourself.
  2. Make sure the person you’re cosigning for is trustworthy. Cosigning between girlfriends/boyfriends is never a good idea. If the romance goes South, the other one could be left holding the bag. Cosigning for a bum who doesn’t work or flunks out of school can be a hard pill to swallow also.
  3. If you do cosign, make sure you get copies of all the papers. Remember, those with the best paper trails win.
  4. Get an agreement, in writing and notarized, that the borrower will repay you all fees incurred including the monthly payments, should they fail to repay the loan and you’re forced to. You don’t want to wind up years down the road and the borrower tells a Judge that you volunteered to repay the loan as a gift.

Can I get out of a cosigned private student loan?

There are times when a borrower with a good credit rating and repayment schedule can be released from the private student loan. The conditions are usually that the borrower make the first 24 consecutive on time payments of the private student loan principle and interest as originally scheduled. Only then can a cosigner apply for a cosigner release.

Now that you have this information, if you cosign for a loan, make sure you do it right!

The Federal Government requires that all lenders provide consigners a notice that explains their liability should they choose to cosign for a private student loan. Cosigning for a private student loan has it’s pros and cons, just make sure you know what they are before signing your John Henry on the dotted line. The consequences for defaulting on a private student loan are quite severe!

Cosigning For a Student Loan

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