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More than half of students borrow money to pay for their undergraduate degree, and many of them face a common problem: as young adults, they didn’t have the time or the means to build up a credit history or a stable income. Without these, student borrowers often struggle to qualify 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 on your own. Here’s when you might need a co-signer for your student loans and how you can include them in your loan application, if applicable.
Do you need a student loan co-signer? 4 factors to consider
It is possible to qualify for a student loan on your own, but some students may find better deals if they apply for a loan with a co-signer. Here’s what to consider before applying:
1. Type of student loan
The type of loan you get has a direct impact on your need for a co-signer. Most federal student loans, including direct subsidized, unsubsidized, and consolidation loans, do not require a credit check or a co-signer. This means that most student applicants can qualify for these loans on their own.
Only one type of federal debt requires a credit check: Direct PLUS loans for parents or graduate students. If you don’t qualify 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, which are offered by private institutions like banks, credit unions, and online lenders, usually require a credit check. If you don’t have good to excellent credit (or any other credit), you’ll likely need a co-signer to help you qualify.
2. Credit score
Your credit score does not affect your approval for most federal student loans. Plus, everyone who qualifies for federal student loans receives the same standardized interest rates.
But if you apply for a private student loan, your credit score will be one of the most important factors in determining your eligibility. Typically, most lenders require minimum scores between 600 and 600 to be approved. The higher your credit score, the more likely you are to be approved for 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 poor credit, this is a red flag for private student lenders. In this case, you may need a co-signer with a longer credit history that shows good or excellent credit to get a private student loan.
4. Professional status and income
When you take out a private student loan, you usually have to show that you have the funds to pay it back. Candidates who work full-time and earn a regular salary probably won’t have a hard time proving it.
But if you work part-time, are unemployed, or have irregular income, you might need a co-signer to help you get 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 Application for Federal Student Aid (FAFSA). After reviewing your FAFSA, your award letter will indicate what federal aid you are eligible 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 whatever help you need and complete the final paperwork.
To apply for a federal PLUS loan, you will need to submit an additional application. If you have adverse credit and are not approved for a PLUS loan, you can add an endorser (aka co-signer) to your online application.
If you want to take out private student loans, you may need a co-signer to qualify or get the lowest interest rates available. An ideal co-signer is someone you trust who has a solid history of responsible credit use and a stable income. This may be a parent, grandparent or other person aged 18 or over who agrees to share the responsibility for the loan.
Keep in mind that this means your co-signer will be responsible if you can’t make your payments. Plus, missing payments will affect not only your credit, but your co-signer’s as well. Because of these risks, it’s important to establish some ground rules for you and your co-signer before submitting your application. Consider:
- Application Requirements. Make sure your cosigner meets the lender’s eligibility criteria before you complete an application. If your lender has a prequalification option, this can help determine if they are suitable for a private student loan.
- Repayment Terms. For private student loans, repayment often begins six months after you graduate or falls below half-time. But not all private student lenders offer this grace period. If you need to start paying off your loan while in school, make a plan with your co-signer on how to handle the payments.
- A backup plan. Even with the best of intentions, you may not be able to pay your student loan. Discuss this possibility with your co-signer in advance and make a backup plan just in case. Describe what both parties will do if you lose your job, have an unexpected financial emergency, or cannot repay your student loan.
When you find the right co-signer, you can complete an application together and enter information from both parties. You will both receive terms and conditions and alerts regarding your account, including student loan approval and disbursement.
Consider lenders that offer co-signer release
Student loans with a co-signer release option are available from many, but not all, private lenders. Co-signer release allows you to remove your co-signer from the loan once certain conditions are met. For example, you’ll likely need strong enough credit and income to qualify on your own, in addition to making a year or more of one-time payments before you can remove a co-signer.
Your co-signer might be more comfortable supporting your loan if it can be withdrawn at some point during repayment. If this is a priority, be sure to check that your desired lender offers a cosigner release before submitting an application.
If you borrow a loan without a co-signer release, you can only remove a co-signer by refinancing your debt into a brand new loan.
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Not all student loans require co-signers. Since most federal student loans are free from cosigner requirements, this is probably your best bet for borrowing money for school. Federal loans also come with 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 afford, explore private student loans. But remember that without a decent credit history and stable income, you might need a co-signer to help you qualify.