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What to Expect as a Student Loan Co-Signer

Key Takeaways

  • Co-signing can help a student build their own credit.
  • With some private loans, co-signers may be released early from obligations.
  • Co-signing will impact the co-signer’s credit.

Private student loans are similar to mortgages or auto loans. The lending institution must be sure you have steady income and a reasonably good credit record before they'll lend you money. Since most undergraduate students don’t have established credit scores or steady incomes, many won’t qualify for a loan on their own. If they do, they likely won’t qualify for the best rates.

That's where a co-signer comes into play. Applying for student loans with a co-signer could help the student get approved and receive the lowest possible rates. Though parents are the most common co-signers, a co-signer can be any trusted adult who is willing and financially qualified. Grandparents, aunts, uncles, siblings, and cousins are just a few examples.

Student loan co-signer considerations

Before you decide whether or not to become a co-signer, you might want to take the following aspects of co-signing a student loan into account:

  • Co-signing a loan could lead to lower interest rates: Your established credit history will likely result in the student receiving lower interest rates on the loan. Lower interest rates mean less money must be repaid over the life of the loan.

  • Co-signers may be released from the loan early: When you co-sign a private student loan, your status as a co-signer doesn't have to be for the life of the loan. With some loans, borrowers who are no longer enrolled in school can apply to release the co-signer from their legal responsibilities after making the required number of consecutive, on-time payments of principal and interest. (Subject to certain terms and conditions.)

  • Co-signing can help a student establish credit: Co-signing a student loan can help a student with limited credit history get approved for a loan. With a loan in his or her own name, the student can begin establishing credit by paying for their education. This benefit is often overlooked.

  • Co-signing a loan will impact the co-signer's credit: While you are not the primary borrower, you do assume equal responsibility for repayment of the loan as a co-signer. This means that late payments will affect both the student's and co-signer's credit ratings. However, many lenders have policies in place to help borrowers manage payments. When applying, ask your lender how they can help in the case of financial hardship. Additionally, it might be a good idea to check in occasionally with the primary borrower to ensure he or she is comfortable making payments on time. That way you can help address any potential concerns before payments are missed.

Alternatives to co-signing

Rather than co-signing a student loan, some parents, guardians, or other financially-qualified friends or family members may choose to take out a parent loan on a student’s behalf. With parent loans, the responsibility for repayment does not fall on the student, only the borrower.

More information

We are committed to helping you reach your potential. For more information about co-signing, please call 888-716-4631, visit us online, or visit your nearest Citizens Bank branch.

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