Finding a co-signer for your private loan
It is very difficult for students to be approved for a private student loan on their own. As such, if you are a student borrower, without an established credit history and a current, steady income:
- You WILL need a cosigner for a private student loan.
- Your cosigner must have “good” to “excellent” credit and an income.
Due to the current credit crunch, it will be harder than ever to be approved for a private student loan this year. Lenders are making their credit criteria stricter than in years past. For almost all students, a credit-worthy cosigner will be a REQUIREMENT to be approved for a private student loan.
These tips provide you with advice on what to look for in a cosigner and how to make your case that cosigning a loan with you is a good risk to take.
Selecting a cosigner can be a challenge. It is not a casual decision to agree to cosign a private student loan. The cosigner is hitching their wagon to you for up to 20 years. They will be required to make loan payments if you fail to do so. Their credit could be damaged if you do not repay the loan on time. These risks may make a potential cosigner think twice about the commitment. Not just any person will do as a cosigner. You have to find a willing cosigner who has a solid credit history and income they can document. The ideal cosigner candidate must:
- Be willing to help you out in a long-term financial commitment.
- Have good or excellent credit, reflected in a strong credit score (roughly 675 or higher).
- Have adequate income they can document demonstrating that they could afford the obligation if you fail to make payments.
- Parents and other relatives are the most common cosigners
- If mom or dad is willing to help out, they might consider the federal PLUS loan as an alternative.
- Remember to shop around before committing to a particular private student loan.
Making your case to a cosigner
- Do the math carefully to justify why you need to borrow the amount you are seeking
- Keep in mind that you might need to borrow for more than one year of school
- Estimate what the monthly payments are likely to be for all of your student loan borrowing
- Estimate what your income might be after graduation (the career office at your school might be able to help you make these estimates)
- Make sure that your expected monthly payments would fit in your likely future income (experts advise that student loan payments not exceed 8% of your gross income)
- Demonstrate your ability to be financially responsible – show evidence you can pay bills on time and stay organized with paperwork
- Research private student loan options and select the best loan for you with SimpleTuition.
Once you have outlined this information, you are ready to have a talk with your potential cosigner. Set aside adequate time with your cosigner. Show the potential cosigner that you have carefully thought through the size of the obligation – and that you believe it is something you can handle. Be honest and open with the potential cosigner about how this obligation will be a long-term commitment on their part.
Go over your calculations and loan choices with your cosigner. SimpleTuition provides the ability to email loan information on many lenders – use those tools as ways to share information with your cosigner.
Be honest about the fact that in order for the loan application to be accepted, the cosigner will need to have a strong credit score (roughly 675 or higher) and will need to document their income. Give them this information before they agree to help you – that way if credit is a problem, they can bow out without having to tell you exactly why. Credit is a highly personal matter that many people don’t like to share – even between parents and children.
Listen to any concerns your cosigner has and respond to them honestly. In subsequent academic years, you should revisit and update the case you made; once again showing the cosigner that you have carefully thought through this substantial obligation.
Applying for the loan
Once your cosigner agrees to help you, complete the application (either online or via phone) together with your cosigner. It is much more efficient if the process is handled in one session.
Shop around and compare private student loan options with SimpleTuition as part of your quest for college financing.
Repaying the loan
Most private student loans allow up to 20 years for repayment. Prepare for the long term and treat this shared obligation as a serious, ongoing commitment. Here are some tips:
- Make sure you are prepared for the first payment – usually six months after leaving school; many recent graduates miss the first payment amidst all the life changes after college (new job, new address, etc.).
- Don’t miss any payments – this can significantly damage your and your cosigner’s credit.
- If you encounter financial difficulties, do two things with respect to your student loans:
- Contact the lender before things get too dire to investigate possible deferment and forbearance options.
- Keep your cosigner in the loop, no matter how uncomfortable this may be. It will be much worse if the cosigner only finds out about your financial difficulties when they see a negative entry on their credit report.
- Keep in touch with your cosigner, especially to inform your lender of any change of address, name or contact information.
- Update your cosigner on how you’re doing – as you move forward in your career and start earning more, your cosigner will be glad to know that you are increasingly better able to handle your shared obligation.