Tips on Selecting a Co-Signer for Your Private Student Loan
“Co-signer” defined
A co-signer of a private student loan is someone
who jointly signs the promissory note (or the contract between lender and
borrower) for the loan. Even though the student is the primary borrower, and
will receive monthly bills and make payments, the co-signer is equally and
jointly responsible for the loan’s repayment.
The co-signer’s responsibility
If the student fails to repay according to
the terms of the loan agreement, the co-signer will be responsible for payments.
The co-signer’s credit would likely be negatively impacted if the student
borrower misses a payment or defaults on the obligation. Also, private student
loans typically have repayment lengths of 20 years or more – making this a
long-term relationship.
Co-signing can expand opportunities for the student
Co-signing a private
student loan is a serious step. Nonetheless, co-signing a loan for a student
borrower can literally make a college education possible.
Here are some reasons why private student loans are used by so many borrowers:
- College is a great investment, but it is also an expensive one. It may not be possible for the student to attend without supplemental financing from private student loans.
- The Federal Stafford Loan is available in limited amounts; additional borrowing by the student is often a necessity.
- If the federal PLUS loan is not an alternative for the parents of the student, private student loans may be the only other financing option.
- A private student loan is a way for a student to share responsibility for the cost of their education while taking the lead in repayment.
- Most private student loans are specially structured to fit the education experience. For example, deferment options and repayment length are designed to accommodate student borrowers.
- If you know the student borrower well, you probably have some sense of his/her commitment to the obligation.
Tips to consider when co-signing
Here are several things to keep in mind
when you and the student borrower seek a private student loan.
- Review the reasons for needing the loan. Talk with the borrower about their academic and career plan. Consider whether their decision to borrow private student loan money for this academic program or institution makes sense given their longer term plans.
- Review the loan amount. Go over the costs associated with attending their chosen academic program and review the other sources of financial aid, such as scholarships, grants and other loans, as well as sources of cash payments from savings or from income. Does the amount that the student wishes to borrow through the private student loan seem like too much or too little? Adjust where appropriate, and remember that borrowing less, whenever possible, is always a good decision.
- Exhaust Federal Stafford Loans first. Make sure the student borrower has used the maximum they can borrow from the Federal Stafford Loans before turning to private student loans. The Stafford Loan is a fixed-rate, government-backed loan that doesn’t require a co-signer. Stafford Loan options can be found at SimpleTuition.
- Consider the fixed-rate federal PLUS loan as an alternative. If the co-signer is a parent, consider the federal Parent Loan for Undergraduate Students. Though the loan is not in the student’s name, the PLUS loan is advantageously structured and has relatively few credit requirements. PLUS loan options can be found at SimpleTuition.
- Shop around. There are many private student loan options out there. Use SimpleTuition as part of your larger quest for good college financing.
- Make sure the borrower understands what’s expected of him/her. Run some numbers to get a feel for what the monthly payments will be and use SimpleTuition as a resource. Remember to account for additional borrowing over multiple years.
- Discuss when payments will start. Most private student loans begin repayment six months after leaving school. As co-signer, you might want to make a note of when repayment begins, as well, making a point to reach out to the borrower with a reminder before the first payment is due.
- Complete the loan application together. The application process will be smoother if you and the student borrower complete the application in one session online of via phone. This way you can provide your information directly to the lender and ensure the details are correct.
Looking for information for the student loan borrower about working with a co-signer? Read Student Loan Co-Signer Tips
