My father cosigned a private student loan for me last year, but is unable to cosign another loan for me this year. How can I get the money I need to pay for college tuition?
Most new private student loans require the borrower to have a creditworthy cosigner. This includes more than 90% of new private student loans to undergraduate students and more than 75% of new private student loans to graduate and professional students. But, what if the student doesn’t have a creditworthy cosigner? How can a student get student loans without a cosigner?
Options for students who don’t have a creditworthy cosigner are limited.
Federal student loans, including the Direct Loan, Perkins Loan, and PLUS Loan, do not require the borrower to have a cosigner. (If the borrower of a PLUS Loan has an adverse credit history, the borrower may still qualify if he or she has an endorser who does not have an adverse credit history. The endorser is similar to a cosigner. The other federal student loans do not consider the borrower’s credit history.)
Some state loans do not require cosigners, but the borrower must have very good credit scores. Small local banks and credit unions do not require a cosigner for personal or signature loans. Secured loans, such as home equity loans and lines of credit, often do not require a cosigner.
Mortgages and other secured loans involve a different set of risks than student loans. If you default on a home equity loan or HELOC, you can lose the home. If you default on a federal or private student loan, the lender cannot repossess your education.
Students who are seeking a private student loan should consider casting a wider net for potential cosigners, not just parents. Aunts, uncles, grandparents, older siblings and other relatives may be eligible to serve as cosigners. However, these relatives may be less forgiving than the student’s parents if the student defaults on the loan and ruins the cosigner’s credit. It can lead to awkward holiday dinners.
Alternately, relatives who are unwilling to cosign a private student loan might be willing to borrow on the student’s behalf on their own. The relative will make the payments on the loan, safeguarding their credit, and the student makes payments to the relative to cover the cost of the loan payments. It is often best to have such a scenario memorialized in a formal written agreement such as a loan promissory note to have the student make the payments on the relative’s loan. Otherwise, disputes can arise as to the nature of the assistance from the relative.
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