A co-signer for your student loan is an individual who is required to pay back the loan if you're not able to make your minimum monthly loan payments. You have the ability to choose anyone to be a co-signer, such as a parent, a friend or even your spouse in certain situations. Having a co-signer can get you a better interest rate and more favorable terms when originating or refinancing your private student loan.
Private student loan servicers typically tend to be flexible about who you can choose to be a co-signer for your student loan. Your co-signer needs to be a U.S. citizen or permanent citizen with a strong credit score as well as have a steady source of income. It can still be a lot to ask to have someone pay for your student loans if you won't be able to, even if the potential co-signer can handle the emotional and financial burden.
Parents are the first two people many student loan borrowers first think of when they decide whom to ask to be a co-signer for their student loans. If you're not able to ask your parents or believe they may not be the best fit as a co-signer, there are still several ways you can get a co-signer for your private student loans.
When you don't need a co-signer
If you're looking to take out federal student loans, you won't have to worry about finding a co-signer, since the government won't check your credit score or income.
On the other hand, private student loans may require you to have a co-signer, especially if you don't meet certain minimum credit score and income requirements in order to qualify.
Additionally, if you're an international applicant, or don't have a low enough debt-to-income ratio, you may also be required to find a co-signer for your private student loan.
Most private student loans have a co-signer. For loans that don't require one, you most likely always end up paying a higher interest rate due to higher credit risk being priced into your personal financial profile. That's why choosing the right co-signer can maximize your chances of getting approved for a loan with a manageable interest rate, and the better the co-signer's credit score, the lower your interest rate will typically be. This lower interest rate can lead to huge savings over time. For example, even a 1% interest rate difference on a loan with a principal of $30,000 and maturity of 15 years and a starting interest rate of 8% can mean getting to keep an additional several thousand dollars or not.
Additionally, consecutively making payments and on time can help boost your credit history, which could help you down the road when you decide to refinance your student loans.
Co-signers obviously end up taking on substantial risk. Not paying your monthly loan payments on time and possibly even entering a default zone could force your co-signer to start paying for your education loan out of their own pocket. This would have financial ramifications for the co-signer but could even possibly damage a personal relationship with a friend or relative, which is why getting a co-signer for your private student loan is an emotional challenge, not just a numbers one.
Good options for a co-signer
Your parents should be your first bet to co-sign on your student loan, but if they won't do, ask an older sibling who has already graduated college and is working in a steady job and who ideally has no personal student loans to pay for either.
An uncle or grandparent who is comfortably in retirement could also be another person to ask for, especially if they already have an auto loan or a mortgage and several credit cards and won't need to worry about having their credit history weighed down in the case where you won't be able to repay. Members of your family who are older than you may be in a much better position to deal with the burden of your student loans.
Mentors and leaders from your community could also be good candidates for co-signing your student loan. If you're an active member at your church, your local priest may also be willing to lend a helping hand.
Another option could be someone who is directly aware of your academic abilities and drive for success, such as a teacher from honors or advanced placement courses from your high school and especially college teachers who understand your abilities from first-hand experience.
Bad options for a co-signer
We've shared with you ways to find a good candidate for co-signing your student loan, but there's also techniques you should probably avoid when going out on your search to find a great match for a co-signer.
Companies which claim to specialize in matching you with strangers who are willing to co-sign your student loans for a cost should be avoided, due to their typically bad reviews from the Better Business Bureau.
These websites will usually ask you to submit a free application, which may include information such as your loan amount and various personal information. Many of the co-signers on the other side of the table may not be legitimate, and you could waste your time and money and other resources trying to find a co-signer that you don't have a relationship with. This could have been time spent on finding a good co-signer match.
I think I found a good co-signer candidate, now what?
If you think you've found someone who could be a great co-signing candidate and they have the credit score and income to back your loan, how exactly do you try to convince them to co-sign the private loan agreement?
It's better to be honest and upfront with the risks of having them added as a co-signer. However, if they know you well enough to understand your ambitions and goals in life, they will be more open to listening to your points on why you would appreciate it if they were the co-signer on your private student loan.
Several good key points to bring up during this critical conversation could be:
Explaining why you need the student loan amount
You could mention how passionate you are about your major in college or how much you enjoy your full-time job which your degree allowed you to have. If you need a $20,000 private student loan to cover your sophomore year of undergrad, for example, explain what the money will be put toward, such as tuition, and what kind of internships you are looking to take on the following summer to help you pay back the loan.
Terms and risks of paying back the loan
If you can't pay back the loan in the future, discuss how you two would work out this situation.
Repayment plan
Have them understand your repayment plan. This could be goals for repaying the loan quicker or uses of extra cash from refinancing at a lower interest rate in order to help purchase a car or even get a mortgage on a home.
Independence
Explain how you can handle the payments without their financial assistance and that you are only looking to have a co-signer added to your application to reap the benefits of a lower interest rate, if this is the case.
Co-signer release opportunity
See if your private lender offers co-signer release and discuss any benefits from being released at a later point in time.
Taking on a co-signer for your personal student loans could be a great idea, especially in the case where you can comfortably afford making payments and can qualify for a refinancing without one. In this case, you're benefiting from having a co-signer backing you up due to your lower interest rate. If you need help calculating your new monthly payments, you can easily estimate your obligations after your refinance.
