Do You Need a Co-Signer for a Private Student Loan?
Students in college are often fiercely protective of their independence. They’d like to stay out late, eat pizza three times per day and read up on topics their parents might never even consider. This sort of rebelliousness is key to the aging process, as students who spread their wings and do their own things are more likely to handle the demands of adulthood without constantly asking for guidance and permission.
But sometimes, college-related tasks are impossible to complete, unless parents or supportive family members get involved. Some students who need loans, for example, may not qualify for good loans unless another person agrees to share the risk.
Credit Scores Are Key
When students apply for loans, they’re required to provide information about their income and their employment history, so loan officials can determine how risky the loan might be. But these same students are also required to provide their Social Security Numbers and other vital bits of personal information, so loan officials can run formal checks on a student’s creditworthiness.
- Total debt levels
- Amount wrapped up in credit card debt
- Number of open credit card accounts
- Promptness in bill paying
- Ratio of credit card debt to available debt
- Age of all credit accounts
When all of this data is compiled, credit agencies provide a simple number as a credit score. The higher the number, the lower the risk of loaning money. Bank officials can determine this number by simply contacting the credit scoring agency and supplying a student’s Social Security Number.
Credit in College
Officials with the National Association of Student Financial Aid Administrators suggest that about 60 percent of all consumers who have utilized some form of credit have scores in the 700 range, which is typically considered “good.” But some college students might have lower scores because they’ve not been participating in the credit market for a long period of time. They simply don’t have the ability to prove that they won’t walk out on their loans. Similarly, some students have very low forms of income in school and high amounts of debt, because they’re focusing on learning and not earning. This could also impact a student’s score.
Banks typically have a credit score cutoff. Applicants that fall below this figure are often required to jump through a few extra hoops. U.S. Bank, for example, suggests that scores lower than 600 would result in loan difficulties. Students who don’t qualify for any loan at all, due to their credit scores, might benefit from obtaining the help of a cosigner.
This helper supplies another layer of safety for a bank offering a loan, as this cosigner will agree to pay the balance of the loan if the student does not. Since the risk of loss is lower, the interest rate might also drop, and that could save the student a bundle of money down the line. In fact, some students with mid-range credit scores ask for help from cosigners, so they can keep their interest rates as low as possible.