5 Questions Parents Should Ask Before They Cosign a Loan

 June 30, 2020
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If your child is seeking a private student loan, you’ll likely need to act as their student loan cosigner. New undergraduates typically can’t meet a lender’s requirements for credit and income, so they need a parent to help them qualify.

While the loan won’t primarily be in your name, you’ll still be responsible for the debt if your child can’t pay it back. Plus, the loan will appear on your credit report and hike up your debt-to-income ratio.

Due to these risks, it’s crucial to ask these five questions before cosigning your child’s student loan.

1. What happens when I become a student loan cosigner?
2. Why should I cosign a loan for my child?
3. What are the risks associated with cosigning for a loan?
4. What are the risks for my child when I cosign a loan?
5. What are alternatives to cosigning a loan?

Plus: Deciding whether to cosign a loan for your child

1. What happens when I become a student loan cosigner?

When you cosign a loan, you agree to take on the responsibility of repaying the loan should the original borrower default. You don’t borrow any money yourself. The loan and the amount borrowed will go to your student.

In an ideal scenario, you help your student get the loan. You do not make payments because the student is the borrower and they are primarily responsible.

2. Why should I cosign a loan for my child?

Most private student loan lenders require a cosigner before approving a new loan to a student. That’s because borrowers must display a strong credit history to qualify for these loans on their own.

Yet, even if a student has a credit history, they may not have had time to build up a good credit score.

Credit scores are largely based on a history of on-time payments made in full, as well as the average age of each line of credit on your report.

For an 18-year-old on their way to college, they just don’t have enough time to create a good credit score needed to qualify for a loan and secure a good interest rate.

Income is also an issue when signing up for a private student loan. Most private student loan lenders require borrowers to show they have the income to reasonably afford repaying the loan. College student incomes rarely make the cut.

Parents can help fill these gaps when they cosign a loan. If you have a strong credit history and score, as well as the income to repay the loan, a lender will be more likely to approve the application.

Parents cosign loans because it helps their child. And if your student makes their loan payments on time and in full, it may help bump your own credit score. But the risks could potentially outweigh that small reward.

3. What are the risks associated with cosigning for a loan?

Cosigning for a loan allows your child to access a financial product that might otherwise be out of their reach. However, you do risk ruining your credit and damaging your financial standing.

When you cosign a loan, you agree to take on the responsibility of that debt if your student fails to make payments. That’s a legal obligation. And the lender can come after you and your assets.

It doesn’t matter what the reason is if your child can’t can’t afford to make student loan payments. You’re responsible if the borrower doesn’t pay. The only exception is in the case of permanent disability or death, in which case the lender might discharge the loan.

In addition to having payments put on your plate, your credit score will suffer if your student fails to repay their private student loans.

Even if your child does a great job of managing payments and repaying the debt, cosigning for a loan increases your debt-to-income ratio since the loan appears on your credit report. This could also impact your ability to take out your own loans in the future.

Additionally, your relationship with your child could suffer serious damage if you experience any of these financial consequences. While everyone may enter the agreement with the best of intentions, money issues can tear families apart.

4. What are the risks for my child when I cosign a loan?

When cosigning for a loan, you put your credit and financial status on the line. But helping your student take out a private loan by cosigning may also put them at risk later on down the road.

Many lenders will put private student loans into default if a cosigner passes away. The same is true if the cosigner files bankruptcy.

Auto-default means the lender can require the entire balance of the loan. The borrower’s financial situation or payment history doesn’t matter.

If a loan goes into default, it can damage the borrower’s credit. Debt collections can also start if they can’t immediately repay the remaining balance.

Parents can try to prevent these unintended consequences for students. You can go to your lender to request a cosigner release, but that isn’t always easy.

That’s why the Consumer Financial Protection Bureau put together a cosigner release resource guide. It helps parents and their children walk through the process of successfully getting a cosigner release on a student loan.

5. What are alternatives to cosigning a loan?

Cosigning for a loan is not the only way to help your student pay for college. As a parent, you can also consider these alternatives for them.

Help your student look for scholarships and grants

Although the cost of college is on the rise, borrowing money may not be necessary. Look for programs from schools, private institutions and the government.

You don’t need to repay scholarships or grants. That’s why these are always the best routes to take before getting loans.

Get a federal student loan

Always fill out and submit a FAFSA before looking into private student loans. This will show you what federal student loans your student can receive.

Federal student loans usually come with lower interest rates and do not require a cosigner.

Create an informal family loan

Can you and your student agree that you’ll provide a set amount for school expenses if they’ll pay you back?

This may be a better way to work out college financing than going through a lender, who will charge interest.

You still take a risk that your money won’t be repaid. But it may be a risk you feel more comfortable with than the ones you take on as a cosigner.

Research ways to get a private student loan without a cosigner

These are actions your student can take to get the loan they need to pay for school on their own.

Deciding whether to cosign a loan for your child

Again, cosigning for a loan on behalf of your student comes with both benefits and risks. Now that you understand them both, take that knowledge and make the decision that’s best for your family financially.

If you decide a private student loan is right for you, make sure to shop around to find a loan.

Rebecca Safier contributed to this report.

Need a student loan?

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LenderVariable APREligibility 
2.49% – 13.85%1Undergraduate

Visit College Ave

2.55% – 11.44%2Undergraduate

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Visit SallieMae

0.00% – 23.00%4Undergraduate

Visit Edly

3.25% – 9.69%6Undergraduate



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* The Sallie Mae partner referenced is not the creditor for these loans and is compensated by Sallie Mae for the referral of Smart Option Student Loan customers.

1 Important Disclosures for College Ave.

CollegeAve Disclosures

College Ave Student Loans products are made available through Firstrust Bank, member FDIC, First Citizens Community Bank, member FDIC, or M.Y. Safra Bank, FSB, member FDIC.. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.

  1. As certified by your school and less any other financial aid you might receive. Minimum $1,000.
  2. Rates shown are for the College Ave Undergraduate Loan product and include autopay discount. The 0.25% auto-pay interest rate reduction applies as long as a valid bank account is designated for required monthly payments. Variable rates may increase after consummation.
  3. This informational repayment example uses typical loan terms for a freshman borrower who selects the Deferred Repayment Option with a 10-year repayment term, has a $10,000 loan that is disbursed in one disbursement and a 8.35% fixed Annual Percentage Rate (“APR”): 120 monthly payments of $179.18 while in the repayment period, for a total amount of payments of $21,501.54. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.

Information advertised valid as of 9/15/2022. Variable interest rates may increase after consummation. Approved interest rate will depend on the creditworthiness of the applicant(s), lowest advertised rates only available to the most creditworthy applicants and require selection of full principal and interest payments with the shortest available loan term.

2 Rate range above includes optional 0.25% Auto Pay discount. Important Disclosures for Earnest.

Earnest Disclosures

Actual rate and available repayment terms will vary based on your income. Fixed rates range from 3.47% APR to 13.03% APR (excludes 0.25% Auto Pay discount). Variable rates range from 2.80% APR to 11.69% APR (excludes 0.25% Auto Pay discount). Earnest variable interest rate student loan refinance loans are based on a publicly available index, the 30-day Average Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of New York. The variable rate is based on the rate published on the 25th day, or the next business day, of the preceding calendar month, rounded to the nearest hundredth of a percent. The rate will not increase more than once per month. Although the rate will vary after you are approved, it will never exceed 36% (the maximum allowable for this loan). Please note, Earnest Private Student Loans are not available in Nevada. Our lowest rates are only available for our most credit qualified borrowers and contain our .25% auto pay discount from a checking or savings account. It is important to note that the 0.25% Auto Pay discount is not available while loan payments are deferred.

3 Sallie Mae Disclaimer: Click here for important information. Terms, conditions and limitations apply.

4 Important Disclosures for Edly.

Edly Disclosures

1. Loan Example:

  • Loans from $5,000 – $20,000
  • Example: $10,000 IBR Loan with a 7% gross income payment percentage for a Senior student making $65,000 annually throughout the life of the loan.
    • Payments deferred for the first 12 months during final year of education.
    • After which, $270 Monthly payment for 12 months.
    • Then $379 Monthly payment for 44 months.
    • Followed by one final payment of $137 for a total of $20,610 paid over the life of the loan.

About this example

The initial payment schedule is set upon receiving final terms and upon confirmation by your school of the loan amount. You may repay this loan at any time by paying an effective APR of 23%. The maximum amount you will pay is $22,500 (not including Late Fees and Returned Check Fees, if any). The maximum number of regularly scheduled payments you will make is 60. You will not pay more than 23% APR. No payment is required if your gross earned income is below $30,000 annually or if you lose your job and cannot find employment.

2. Edly Student IBR Loans are unsecured personal student loans issued by FinWise Bank, a Utah chartered commercial bank, member FDIC. All loans are subject to eligibility criteria and review of creditworthiness and history. Terms and conditions apply.

5 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  • Variable Rate Disclosure: Variable interest rates are based on the 30-day average Secured Overnight Financing Rate (“SOFR”) index, as published by the Federal Reserve Bank of New York. As of September 1, 2022, the 30-day average SOFR index is 2.23%. Variable interest rates will fluctuate over the term of the loan with changes in the SOFR index, and will vary based on applicable terms, level of degree and presence of a co-signer. The maximum variable interest rate is the greater of 21.00% or the prime rate plus 9.00%.
  • Fixed Rate Disclosure: Fixed rate ranges are based on applicable terms, level of degree, and presence of a co-signer.
  • Lowest Rate Disclosure: Lowest rates are only available for the most creditworthy applicants, require a 5-year repayment term, immediate repayment, a graduate or medical degree (where applicable), and include our Loyalty and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Rates are subject to additional terms and conditions, and are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.


    Undergraduate Rate Disclosure: Variable interest rates range from 3.25%-10.35% (3.25% – 9.69% APR). Fixed interest rates range from 4.24% – 10.59% (4.24% – 9.93% APR). 

    Graduate Rate Disclosure: Variable interest rates range from 3.75%-9.90% (3.75% – 9.68% APR). Fixed interest rates range from  5.22% – 10.14% (5.22% – 9.91% APR). 

    Business/Law Rate Disclosure: Variable interest rates range from 3.75%-9.35% (3.75% – 9.16% APR). Fixed interest rates range from 5.20% – 9.59% (5.20% – 9.39% APR).

    Medical/Dental Rate Disclosure: Variable interest rates range from 3.75%-9.02% (3.75% -8.98% APR). Fixed interest rates range from 5.18% – 9.26% (5.18% – 9.22% APR). 

    Parent Loan Rate Disclosure: Variable interest rates range from 3.25%-9.21% (3.25% – 9.21% APR). Fixed interest rates range from 3.96%-9.50% (3.96%-9.50% APR).

    Bar Study Rate Disclosure: Variable interest rates range from 6.58%-11.72% (6.58% – 11.62% APR). Fixed interest rates range from 7.39% – 12.94% (7.40% – 12.82% APR). 

    Medical Residency Rate Disclosure: Variable interest rates range from 5.67%-9.17% (5.67% – 8.76% APR). Fixed interest rates range from 6.99% – 10.49% (6.97% – 10.08% APR).

6 Important Disclosures for Funding U.

Funding U Disclosures

Offered terms are subject to change. Loans are made by Funding University which is a for-profit enterprise. Funding University is not affiliated with the school you are attending or any other learning institution. None of the information contained in Funding University’s website constitutes a recommendation, solicitation or offer by Funding University or its affiliates to buy or sell any securities or other financial instruments or other assets or provide any investment advice or service.

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