Higher education can be an expensive endeavor – with limited credit history and income, it can be difficult for new students to access funds they need to pay for school.
One option is to find a cosigner to apply with you for a student loan. However, there are some serious risks to this kind of partnership. Here’s how to decide if student loans without a cosigner are the best option for you.
Do you need a student loan cosigner?
Before applying for a new student loan and finding a cosigner, make sure you’ve exhausted all your options. Federal student loans work best for students who don’t have a cosigner, so try going this route before choosing private student loans.
Working with a loved one who’s helping you apply for a loan takes a lot of trust on both sides and you don’t want to damage your relationship in the process. When figuring out if getting a student loan cosigner is the right option for everyone involved, consider the following benefits and drawbacks.
Student loans with cosigner
If you’re having trouble qualifying for a student loan, working with a cosigner can be very advantageous. Here are some of the reasons why.
1. Higher chance of qualifying for a loan
One of the main pros to having a cosigner is the fact that you have a higher chance of getting a private student loan. If you have poor credit or even no credit, a cosigner can help you qualify by using their history of credit in addition to yours.
2. Lower interest rates
Likewise, your credit history may only allow you to qualify for a high interest rate, whereas a cosigner may have a better credit score which can significantly reduce the total interest rate.
Having a lower student loan interest rate can decrease your monthly payments and save you a lot of money in interest payments over the long run.
3. Opportunity to build credit
Any time you apply for a loan and make consistent, on-time payments, your credit history will improve. This is especially true when you have a cosigner. If you choose to refinance your student loan later or apply for a different kind of loan, a solid credit history will allow you to do so without a cosigner.
Student loans without cosigner
In addition to the pros of having a cosigner, there are some cons as well. Here are some of the reasons why working with a cosigner may not be the best choice as a new student.
1. Risk to the relationships involved
Cosigners are usually family members or close friends, but you’ll want to be careful when partnering up with a loved one as this situation can add additional strain to the relationship.
If you miss payments, your cosigner is equally responsible. Don’t ask a cosigner to help you out with a student loan unless you’re willing to stay current on payments, or they’re willing to take over the payments if you’re unable.
Be sure to consider the consequences to their credit score if you fail to meet your end of the deal.
2. Cosigner is responsible for the loan
As mentioned, the person who cosigns your student loan will ultimately be responsible if you’re unable to make the payments. This person might not have the financial means or willingness to do so if that happens.
There have even been cases where the student, who owned the student loan, passed away and the cosigner was still responsible for making payments.
3. Difficult to remove a cosigner
It’s not easy to remove a name from a student loan account, as not all lenders offer cosigner release. And, depending on the lender, it can take anywhere from 12-48 months of consecutive, on-time payments to be approved to have the cosigner’s name removed.
Additionally, you must meet the income requirements and have a satisfactory credit score to even be considered as a standalone borrower. It’s also highly difficult to discharge student loans in bankruptcy, so if you and a cosigner decide to sign for your student loan, you can expect to share the debt.
Applying for student loans without a cosigner
Before signing on the dotted line and asking a loved one to do the same, be sure to weigh out all the pros and cons. Are there any other avenues you can take or options available? Exhaust all your financial aid opportunities before considering private loans for college.
In the end, if you find that you still need a cosigner, only borrow the money you absolutely need. This will help keep your budget in line and not overextend you or your cosigner in the event payments are difficult to keep up with.
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