Need a co-signer for student loans? -Forbes | Vette Leader

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More than half of college students borrow money to pay for their undergraduate degrees, and many of them face a common problem: As young adults, they didn’t have the time or resources to build a credit history or steady income. Without these things, student borrowers often have trouble qualifying for private student loans without a co-signer.

However, not all forms of student debt require a co-signer, and it is possible to borrow money for college yourself. Find out when you may need a co-signer for your student loans and how to include them in your loan application, if necessary.

Need a co-signer for student loans? 4 factors to consider

It is possible to qualify for a student loan yourself, but some students may find better deals applying for a loan with a co-signer. The following should be noted before applying:

1. Type of Student Loan

The type of loan you receive will directly affect your need for a co-signer. Most government student loans, including direct subsidized, unsubsidized, and consolidation loans, do not require a credit check or co-signer. This means that most college applicants can qualify for these loans themselves.

Only one type of government debt requires a credit check: direct PLUS loans for parents or students. If you are not eligible for PLUS loans due to negative credit scores, you can be approved after adding a co-signer (or “endorser” as the Department of Education calls it).

Private student loans, offered by private institutions such as banks, credit unions, and online lenders, usually require a credit check. If you have poor to excellent credit (or no credit at all), you likely need a co-signer to help you qualify.

2. Creditworthiness

Your credit score does not affect your approval for most federal student loans. Also, everyone who is eligible for federal student loans receives the same standardized interest rates.

However, when applying for private student loans, one of the most important factors in determining your eligibility is your credit score. Typically, most lenders require minimum scores in the mid to high 600s in order to be approved. The better your credit score, the more likely you are to get the loan at the lowest interest rate available.

3. Credit History

Your credit score is based on the content and length of your credit history. If you have a short credit history or a poor credit score, this is a red flag for private student lenders. In this case, you may need a co-signer with a substantial credit history showing good or excellent credit to obtain a personal student loan.

4. Job Status and Income

When you take out a personal student loan, you usually have to prove that you have the funds to pay it back. Applicants who work full-time and earn regular paychecks will likely have no trouble proving it.

However, if you work part-time, are unemployed, or otherwise have volatile income, you may need a co-signer to help you qualify for a private student loan.

How to add a co-signer to your student loan

If you are applying for federal student loans, you must submit the Free Federal Student Aid Application (FAFSA). After your FAFSA is verified, your grant letter will identify what federal assistance you qualify for, including grants, scholarships, work study programs, and student loans. Most types of federal debt do not require (or allow) co-signers, so you can simply accept the help you need and do the final paperwork.

In order to apply for a federal loan PLUS, you must submit another application. If you have negative credit and are not eligible for a PLUS loan, you can add an endorser (also known as a co-signer) to your online application.

If you are interested in taking out private student loans, you may need a co-signer to qualify or receive the lowest interest rates offered. An ideal co-signer is someone you trust who has a long history of good credit stewardship and a stable income. This can be a parent, grandparent or other person 18 years or older who agrees to share responsibility for the loan.

Keep in mind that if you can’t make your payments, this means your co-signer is on the hook. In addition, missed payments not only affect your balance, but also that of your co-signer. Because of these risks, it’s important to set some basic rules for you and your co-signer before applying. Consider:

  • Application requirements. Make sure your co-signer meets the lender’s eligibility requirements before completing an application. If your lender has a pre-qualification option, this can help determine if they are eligible for a personal student loan.
  • Refund Policy. For private student loans, repayment often begins six months after completing or falling short of mid-term enrollment. But not all private student lenders offer this grace period. If you need to start paying off your loan while you’re in school, create a payment management plan with your co-signer.
  • A backup plan. Even with the best of intentions, there’s a chance you won’t be able to afford your student loan. Discuss this possibility with your co-signer in advance and create a backup plan just in case. Outline what both parties will do if you lose your job, face unexpected financial hardship, or are otherwise unable to make your student loan payment.

When you have found the right co-signer, you can fill out an application together and enter the information of both parties. You’ll receive both terms to agree to and notifications about your account, including your student loan approval and disbursement.

Consider lenders that offer co-signer exemptions

Student loans with a co-signer release option are available from many private lenders, but not all. Co-signer release allows you to remove your co-signer from the loan once certain conditions are met. For example, you will likely need good credit and income to qualify yourself, in addition to making payments on time for a year or more before you can remove a co-signer.

Your co-signer may be better able to support your loan if it can be removed at some point during repayment. If this is a priority, make sure your desired lender offers co-signer approval before applying.

If you take out a loan without co-signer release, the only way to remove a co-signer is to refinance your debt into an entirely new loan.

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bottom line

Not all student loans require co-signers. Since most government student loans are free of co-signer requirements, this is probably the best option for borrowing money for school. Federal loans also offer other benefits and protections that often make them a better option than private student loans.

If you need to borrow more than the Department of Education can offer you, explore private student loans. However, remember that without a decent credit history and stable income, you may need a co-signer to help you qualify.

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