Most private student loans require a creditworthy cosigner. Borrowers may need a cosigner if they have bad credit or if they have a thin or non-existent credit history. Even when the borrower has very good credit, adding a cosigner can lead to a lower interest rate and higher loan limits. More than 90% of private student loans for undergraduate students and more than 75% of private student loans for graduate and professional school students are made with creditworthy cosigners.
So, how do you find a creditworthy cosigner? A cosigner must be willing and able to cosign the loan.
The best source of potential cosigners is family and friends who know you well and who are interested in your success.
Start with your parents, since parents are the most common cosigners.
You can also ask other close relatives, such as your spouse, aunts, uncles, cousins and grandparents.
A close personal friend is also an option.
Cosigners must be over the age of majority in their state of legal residence, typically 18, 19 or 21.
Lenders require cosigners to have a very good or excellent credit score. Lenders may also require the cosigner to have worked for his or her current employer for several years and to have verifiable income sufficient to repay the debt. Lenders may also ask how long the cosigner has lived at his or her current address.
It is hard to know in advance whether someone is on a solid financial footing. But, a relative who has trouble keeping a job for more than a few months at a time and who relies on cash advances from credit cards to pay the rent is probably not a good candidate for a cosigner.
An additional challenge for international students is that the cosigner must be a U.S. citizen or permanent resident.
Start by telling the potential cosigner why you need a cosigner. Having a cosigner has two primary benefits:
Demonstrate to the cosigner that you’ve exhausted all of your other financial aid options, such as federal student loans, grants and scholarships, that you are not borrowing more than what you need and that you can afford to repay the loan.
Calculate your monthly loan payments and estimate your monthly income after graduation, so you can show the cosigner that you’ll be able to afford to repay the debt. Mention how you’ve managed money responsibly in the past. Tell the cosigner that you will make all of the monthly payments on-time.
Tell the cosigner about cosigner release options.
Be honest with the cosigner about the risks of cosigning a private student loan.
Parents may wish to consider Parent PLUS Loan or a private parent loan as an alternative to cosigning a private student loan. These loans won’t help the student build a good credit history, but will provide the parent with more control over loan payments.
Some web sites claim to match borrowers with cosigners. These cosigners charge a fee, such as 5%, 10%, or even 25% of the loan amount, to cosign the loan. Do not pay any money in advance, as scam artists may take your money without cosigning the loan. There is also the potential for identity theft, if the cosigner asks for your personal information, such as name, date of birth, Social Security Number, and bank account numbers.
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