If you’re looking for ways to pay for school, you’ve likely come across both federal and private student loans. The U.S. Department of Education offers federal student loans, while banks, credit unions and private lenders offer private student loans.
One big difference between the two types of loans hinges on which debt requires a cosigner. Do you need a cosigner for student loans, either federal or private? For federal student loans, the short answer is no. But let’s look at the issue in a little more detail:
- Do you need a cosigner for federal student loans?
- Can you be denied a federal student loan?
- Do you need a cosigner for private student loans?
If you’re seeking federal loans, there’s good news: You almost never need a cosigner for student loans offered by the Department of Education. This is a big benefit for federal student loan borrowers, as finding a cosigner for student loans — or any type of loan — can be tough.
A cosigner is a guarantor who signs on to a loan on your name and agrees to repay it if you don’t.
Additionally, cosigning a student loan can be risky for cosigners, as they are legally on the hook for paying back your debt if you are unable to make payments.
Plus, taking advantage of any federal student loans first is a good idea anyway. Not only can you finance your education without using a cosigner, but you can also enjoy federal loan benefits such as income-driven repayment options, fixed interest rates and deferment and forbearance.
One exception to the norm
While most federal student loans don’t require a cosigner, there is one exception. If you are applying for Direct PLUS loans and have a poor credit history, you may not be eligible without an “endorser,” who is similar to a cosigner. So, if you get an endorser who does not have an adverse credit history, you can receive a Direct PLUS Loan.
Essentially, an endorser acts as a cosigner in this situation. If you’re applying to graduate school or you are a parent with an adverse credit history who is taking out a loan on your child’s behalf, this one caveat could affect your financial aid, requiring you to get a cosigner. But if you’re applying for federal financial aid for your undergraduate degree, you likely won’t need to worry about someone cosigning a student loan for you.
If you are a parent or applying for financial aid for your graduate degree, you should check your credit score and credit report first to see where you stand. If you have decent credit, you probably don’t need to worry about a cosigner. But if you have poor credit, you may need to find an endorser.
Though a cosigner isn’t necessarily needed for a federal student loan, know that you can be denied a federal student loan for several reasons. This may happen if you don’t meet the basic eligibility criteria, which includes:
- Demonstrating financial need
- Being a U.S. citizen or an eligible noncitizen
- Having a high school diploma or GED certificate
- Completing and submitting a Free Application for Federal Student Aid (FAFSA)
- Being enrolled or accepted as a regular student in an eligible degree or certificate program
- Maintaining satisfactory academic progress
If you are denied federal aid, talk to your student aid office. The Federal Student Aid Office website provides tips to regain eligibility for financial aid.
While most federal student loans don’t require a cosigner, private student loans are a different story. These loans are made through financial institutions or private lenders, which often have underwriting criteria that’s similar to other types of loans.
According to a 2017 report by the Consumer Financial Protection Bureau (CFPB) and the U.S. Department of Education, more than 90% of new private student loans are cosigned. If you have limited or poor credit, you may need a cosigner to receive private student loans. A cosigner can help you get approved for a loan as well as avail of a lower interest rate. However, you can still get a private student loan without a cosigner if you have an excellent credit score.
Dangers of cosigning a student loan
Remember that there are serious consequences for borrowers and cosigners alike if those payments aren’t made on time. If the borrower is unable to pay their student loans, the cosigner is liable for the debt. If a payment is missed, both parties face a hit to their credit.
Getting a student loan cosigned may make it easier for you to get approved for financial aid, but it can often be hard to release a cosigner when one is no longer needed. In fact, the CFPB said in 2015 that 90% of private student loan borrowers were denied cosigner release. Even worse, some student loan borrowers faced “auto default” when their cosigner died or went bankrupt, in which case the loan balance was due in full.
Since the majority of federal student loans don’t require a cosigner and come with a host of government-backed benefits, it’s a good idea to take advantage of these first. Then if you need to borrow more money, investigate your private loan options.
Yael Bizouati contributed to this report.
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1 Important Disclosures for College Ave.
College Ave Student Loans products are made available through either Firstrust 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.
Information advertised valid as of 7/1/2020. Variable interest rates may increase after consummation. Lowest advertised rates require selection of full principal and interest payments with the shortest available loan term.
2 Sallie Mae Disclaimer: Click here for important information. Terms, conditions and limitations apply.
3 Important Disclosures for Discover.
Lowest APRs shown for Discover Student Loans are available for the most creditworthy applicants for undergraduate loans, and include an interest-only repayment discount and a 0.25% interest rate reduction while enrolled in automatic payments.
4 Important Disclosures for Earnest.
5 Important Disclosures for SoFi.
UNDERGRADUATE LOANS: Fixed rates from 4.23% to 11.76% annual percentage rate (“APR”) (with autopay), variable rates from 1.90% to 11.66% APR (with autopay). GRADUATE LOANS: Fixed rates from 4.13% to 11.83% APR (with autopay), variable rates from 1.80% to 11.73% APR (with autopay). MBA AND LAW SCHOOL LOANS: Fixed rates from 4.11% to 11.81% APR (with autopay), variable rates from 1.78% to 11.72% APR (with autopay). PARENT LOANS: Fixed rates from 4.23% to 11.26% APR (with autopay), variable rates from 1.90% to 11.16% APR (with autopay). For variable rate loans, the variable interest rate is derived from the one-month LIBOR rate plus a margin and your APR may increase after origination if the LIBOR increases. Changes in the one-month LIBOR rate may cause your monthly payment to increase or decrease. Interest rates for variable rate loans are capped at 13.95%, unless required to be lower to comply with applicable law. Lowest rates are reserved for the most creditworthy borrowers. If approved for a loan, the interest rate offered will depend on your creditworthiness, the repayment option you select, the term and amount of the loan and other factors, and will be within the ranges of rates listed above. The SoFi 0.25% autopay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. Information current as of 07/10/2020. Enrolling in autopay is not required to receive a loan from SoFi. SoFi Lending Corp., licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. NMLS #1121636 (www.nmlsconsumeraccess.org).
6 Important Disclosures for Ascent.
Before taking out private student loans, you should explore and compare all financial aid alternatives, including grants, scholarships, and federal student loans and consider your future monthly payments and income. Applying with a cosigner may improve your chance of getting approved and could help you qualify for a lower interest rate. Ascent Student Loans may be funded by Richland State Bank (RSB). Ascent Student Loan products are subject to credit qualification, completion of a loan application, verification of application information and certification of loan amount by a participating school. Loan products may not be available in certain jurisdictions, and certain restrictions, limitations; and terms and conditions may apply. Ascent is a federally registered trademark of Turnstile Capital Management (TCM) and may be used by RSB under limited license. Richland State Bank is a federally registered service mark of Richland State Bank.
* Application times vary depending on the applicant’s ability to supply the necessary information for submission.
7 Important Disclosures for CommonBond.
Offered terms are subject to change and state law restrictions. Loans are offered through CommonBond Lending, LLC (NMLS #1175900).