Do You Know The Risks Of Co
Co-signing for student loans means you agree to accept legal responsibility for paying back someone else’s debt if they can’t. This decision could affect you financially in a number of ways:
- You could end up with your credit score damaged if the primary borrower doesn’t make payments on time.
- Lenders could try to collect from you if the primary borrower doesn’t make payments on time or defaults on the loan.
- In some cases, you could be responsible for repayment if the primary borrower becomes disabled or dies
- Your own ability to borrow could be affected because of the co-signed loans on your credit record
Unless you are willing to take on all of these risks, you may want to say no if you are asked to co-sign student loans.
Low/no Credit Score & Credit History
As with a cosigner, an international student loan will require you to show an excellent credit score and a long credit history in the US.
This is obviously very difficult for international students, as college is often their first time in the US for an extended period of time.
Even if you began building credit in college, it would likely not have enough time to grow during your time there that you would be eligible for an international private student loan without a cosigner.
How Cosigning A Private Student Loan Works
A cosigner is a person who agrees to pay off a loan if the primary borrower doesnt. The cosigner generally has higher income and better credit, which allows the student to get approved for a loan and receive more attractive interest rates. Often, youll cosign a loan for a child or spouse, but grandparents and other close family members may also consider cosigning a loan for a student.
In many respects, cosigners are co-borrowers because they are equally responsible for the loan, says Richard Castellano, Sallie Mae spokesperson. Any missed payments are reported to credit bureaus for both the borrower and the cosigner.
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How To Get Out Of Student Loan Debt
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Question: I need help with my student loan. Im 64 years old and I graduated with my MBA in 2015, and still cant find a job. Ive been to several interviews, but no one will hire me either because of my age or because I had a felony when I was 27, even though it has since been discharged and cleared. What can I do?
Have a question about getting out of student loan or other debt? Email .
Answer: The good news is that if you have federal student loans, you have a couple options. While your federal loan payments are likely on pause through May 1, 2022, when you have to begin repaying them, youre going to want to make the payments manageable. So pros recommend considering an income-driven repayment plan. If your discretionary income is determined to be $0, your monthly payment could be set as low as $0, says Rebecca Safier, certified student loan counselor and higher education finance expert at Student Loan Hero.
Private student loans, unfortunately, arent eligible for these federal programs, but your loan servicer might be able to work with you to adjust your payments or even pause them temporarily. Its worth calling your servicer to discuss your situation and see if they can help. You might also explore refinancing your private student loans, which could lead to a better interest rate and new monthly terms, says Safier.
What Are My Other Options
In most cases, parents are better off taking out a parent PLUS loan from the government than cosigning a private loan for their child, Kantrowitz said. Even though the loan is in your name, you can make a side agreement with your child that he or she will repay it.
“That way, the parent remains in control and can make the payments if the student doesn’t,” Kantrowitz said.
Even so, there’s risk involved. “If the student is irresponsible, it makes for very awkward holiday dinner conversations.”
If you do end up cosigning a loan for your child, Griffin Rubin said, there’s usually a way for you to access an account in which you can keep tabs on the debt.
Perhaps the bigger point? If your child has exhausted their own federal student loans, and needs to take out private loans, there’s a good chance they’re borrowing too much, Kantrowitz said.
“They should consider a less expensive college,” he said.
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How Interest Rates And Cosigners Are Related
During the application process through lenders that require a cosigner, the lenders will review your application to consider whether they are willing to issue a student loan. The lender will evaluate whether they believe they will be paid back by looking at the financial history of the borrower and cosigner, asking:
- Will the student loan application be approved?
- If yes, what will be the applicable interest rate?
Which Option Works Better Only You Can Decide
With all these details in mind, its easy to see how either option poses a certain amount of risk. Becoming a cosigner on a student loan forces you into a situation where your financial health is hinged on your dependent being responsible with their loans, but Parent PLUS Loans and private parent loans require you to be solely responsible for repayment, which may or may not make sense depending on how much assistance you wanted to provide.
Before you consider student loans, be sure you and your dependent have researched all funding sources including those that dont require you, the parent, to commit to repayment at all.
For example, has your student researched enough scholarships? If you still fall short of covering your college costs, it almost always makes sense to tap out federal student loans in the students name that dont require a credit check or cosigner first. Thats because federal student loans come with low fixed interest rates and federal protections like deferment, forbearance, and income-driven repayment plans.
Ideally, your child will borrow what they need first through federally backed student loans on their own, then only lean on you to fill in the gaps. At that point, you can decide whether to rely on student loans for parents or become a cosigner on a private student loan that might come with better rates and terms.
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What Is A Student Loan Cosigner
A cosigner for a student loan is a creditworthy family member or close friend who agrees to share legal liability for your student loans with you.
When you add a cosigner, the lender will consider that persons financial condition when approving you and determining your interest rates, which is why cosigners are often an excellent idea for borrowers with little or no credit history.
Who Can Be A Student Loan Cosigner
Very often, a student loan cosigner is a parent. But it doesnt have to be. We find that 26% of Smart Option Student Loan® cosigners are someone other than the parent.1 Your spouse, relative, guardian, or friend can be a cosigner.
- Only one person can cosign for a private student loan. For instance, if two parents are willing to be cosigners, only one will be able to do it.
- Your cosigner is equally responsible for repayment of the full amount of the loan, not just part of it.
- Your cosigner can live in a different state than you.
- A cosigner should be someone you know and trust, and who is willing to fill out the application on their own.
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Consider These Tips To Safeguard Your Credit
If you feel confident that your child is responsible and you want to help by co-signing on a student loan, be sure to consider the following safeguards.
- Make sure the student exhausts all federal financial aid options including federal student loans before considering a private student loan.
- Encourage the student to diligently pursue scholarships and grant opportunities.
- Only borrow what is absolutely needed. Play it safe by not taking out more than one years anticipated salary upon graduation. For example, if you expect your child to earn $35,000 at his/her position, dont borrow more than $35,000 in total student loans while he/she is in college.
- Have the borrower sign an agreement that stipulates he/she will repay any missed payments and/or fees you cover over the life of the loan. This way, if you do end up in court, you may be able to recoup some or all of your losses.
- Take charge of the student loan payments. It could be months before a student loan servicer or creditor contacts you about missed payments. By then, the damage to your credit score has already been done. Save yourself the trouble by mailing in the payments or submitting them electronically online. In some cases, lenders offer an incentive for using automatic payments.
Saying no to your child is never easy, but in the end you must do whats best for your financial security.
Is It Necessary To Have A Parent Cosign A Student Loan
It is feasible to obtain student loans without the involvement of your parents or another cosigner.
You can choose between federal and private student loans while taking out student loans. In general, you should use government loans and scholarships to fund as much of your education as possible before resorting to private loans.
You can apply for federal loans without a cosigner and without having your credit checked if you complete the FAFSA.
On the other hand, private loans can be challenging to obtain since you must show that you have the financial means to repay your student loans, that you have good credit, and that you are a U.S. citizen.
While you can receive a private student loan without a cosigner, having one can increase your chances of getting accepted or earn you better rates, especially if you have a poor credit history.
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How Cosigning May Affect Your Credit
When you cosign a loan, that loan will show up on your credit report. This is because cosigning a loan makes you legally obligated to repay the loan if the borrower fails to pay it back. Your credit may be impacted in some significant ways from cosigning.
Because the total amount of debt you owe impacts your credit score, cosigning a loan with a large balance could drop your score. Additionally, your debt-to-income ratio could be less preferable after taking on a loan if your income doesn’t increase at the same time. This can be important because a higher DTI ratio indicates to a lender that you have less discretionary income to pay back the loan you’re trying to qualify for.
On the other hand, your credit always benefits from making payments on time, so make sure the borrower you’re working with is doing this. If they come across a rough patch financially, you may want to step in and help so that your credit score doesn’t take a negative hit. Also, cosigning on a private student loan can potentially help your credit score because it broadens your credit mix .
Can A Non Family Member Cosign A Loan
If you have a friend thats willing to cosign for you, they have some responsibility for the auto loan. If youre unable to make payments, the lender can ask your cosigner to cover the payments. If you have a friend you think can cosign for you, assure them that youre going to stay on top of the car loan.
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History May Repeat Itself
If the person requesting your help to cosign a private student loan has a history of not following through on promises, doesnt have a history of making good financial decisions, or cant seem to save any money, you may want to reconsider signing your name to a student loan agreement. Remember, you are equally responsible for paying back the loan. If the borrower fails to make his/her payments on time, you can be sure the lender will come looking for you.
How Cosigners Helps Students
Cosigning on a private student loan can be a big help to students trying to take out private student loans for college.
How does a cosigner help?
A cosigners credit history is factored into the approval decision, and a cosigner can strengthen a private loan application when a student lacks a long or solid enough financial track record.
> > Read More:Do I need a cosigner on my student loans?
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The 5 Most Important Takeaways:
- Cosigners are co-borrowers. When you cosign a loan, you are equally responsible for payments.
- The student loan payment record is reported to credit bureaus for both the cosigner and the borrower.
- For private student loans, a cosigner release may be possible with 12 to 24 months of on-time payments and proof of sufficient post-graduation income.
- Dont cosign for a loan you cant pay back. For the sake of your finances, dont borrow more than the student can pay based on their projected income.
- The endorser on a parent PLUS loan can be released when the parent consolidates their loans, most likely after the student graduates.
Who Should And Shouldn’t Cosign On A Student Loan
|People who SHOULD cosign on a student loan:||People who SHOULDN’T cosign on a student loan:|
A cosigner has to be able and willing to pay back the loan in case the borrower cannot.
Not everyone is fortunate enough to have a large savings account or the means to repay the debt.
Additionally, a cosigner has to have good credit and financial security in order to assume the risk of the loan.
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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 borrowers financial situation or payment history doesnt matter.
If a loan goes into default, it can damage the borrowers credit. Debt collections can also start if they cant 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 isnt always easy.
Thats 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.
How Can I Protect Myself If A Student Doesnt Pay On A Cosigned Loan
Unfortunately, there are situations that can interfere with the timely repayment of a student loan.
Some students may not find a job immediately after graduation, preventing them from making payments on time or in full. Other times, unexpected expenses such as illness or injury may interrupt their regularly scheduled payments. Ascent college loans will be forgiven if the borrower dies or becomes totally and permanently disabled
And then there are times when a borrower simply chooses not to pay.
If the student borrower hasnt proactively communicated with you, you may not realize the student has defaulted on the loan until its too late. Even though youre equally responsible for the loan, lenders often send information to the student borrower first, and reach out to the cosigner if theres a problem.
When payments stop happening altogether, the lender will likely expect the cosigner to make any back payments and take over repayment moving forward.
However, there are a few things you can do to protect yourself before and after an issue arises.
If the Worst Happens
If you cosigned the loan without a legally binding agreement in place, and the student cant or wont pay, your options are limitedbut you do have some.
So, while you do have rights and several options, know that in most cases the loan will need to be repaid.
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How Can Ascent Help Cosigners And Borrowers
Ascent is honored to be recognized as the best private student loan for 2021 by Forbes Advisor and NerdWallet , and is committed to providing students with more opportunities to finance their education. In addition to our student loans and scholarship opportunities, we offer free financial wellness resources to set students and their families up for financial success during college and beyond.
Visit our Bright Futures Engine to learn more about the potential return of your college investment across different schools and majors.
As current and former students, we provide free resources to help you throughout your education, which may include links to third-party websites . For our full disclaimer, please .
When Should You Co
Private student loans use the borrowers credit score, financial history and more to determine whether the borrower is eligible and what rates to offer. In many cases, lenders require credit scores of at least 600.
Because many students seeking private loans do not have much credit history to their name, they may not be able to get a loan without adding a co-signer. They may also choose to add a co-signer if they do qualify but their credit score has resulted in high rates.
If your child has used up all of their options for scholarships, grants and federal student loans, co-signing a loan for them may be your best option. You can take out a student loan yourself, but co-signing could be a better choice. Here are some of the benefits of co-signing a student loan:
- The student loan will be in your childs name, so they can start building credit history.
- Both you and your child could see improved credit scores with a positive payment history.
- A co-signed undergraduate loan may be cheaper than a parent loan.
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