Tips on selecting a cosigner
A cosigner 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 cosigner is equally and jointly responsible for the loan’s repayment.
The cosigner’s responsibility
If the student fails to repay according to the terms of the loan agreement, the cosigner will be responsible for payments. The cosigner’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 10-15 years or more – making this a long-term relationship.
Cosigning can expand opportunities for the student
Cosigning a private student loan is a serious step. Nonetheless, cosigning 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.
- 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 cosigner.
- Consider the fixed-rate federal PLUS loan as an alternative. If the cosigner 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.
- 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 cosigner, 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.