What is a student loan cosigner? Everything you need to know about cosigning a student loan

College doesn't come cheap. That's why, to make higher education possible, many families are turning to private student loans. These loans are offered by private lenders to help bridge the funding gap left by federal student aid, scholarships and other sources, in meeting the cost of college.

But qualifying for a private student loan requires a borrower to have a solid credit rating and steady income. More often than not, students don't have either of these things yet. That's where having a cosigner can help. But is cosigning a private loan a smart financial decision for you? To make that determination, you need to fully understand what's involved.

What is a cosigner?

A cosigner is someone who commits to the joint responsibility of repaying a loan, along with the primary borrower. If you're a parent, guardian or family member of a college-age student, it likely could be you. If you do decide to cosign, you are legally taking on the obligation for paying back the loan in the event your student can't make the payments.

When is a cosigner needed (or not needed)?

A cosigner is typically not necessary if your student is applying for federal student loans. Federal undergraduate loans and some grad school loans don't require credit checks, so even if a student doesn't have a credit history, they could still be eligible for the loan. The only type of federal student loan that requires a credit check is a Direct PLUS loan (also referred to as a parent PLUS loan) that's for parents or graduate students.

For private student loans, a cosigner will most likely be needed. When applying for a private student loan, the lender reviews the borrower's credit history, as well as other factors such as income and debt-to-income ratio. Most college-bound students haven't established a credit history yet and are likely only working part time, if at all. When added as a cosigner for a private student loan, your credit history and other factors are evaluated too. Having a credit-qualified cosigner increases the chances of being approved for the loan and may help get a lower interest rate.

How common are cosigners? At Citizens, 98% of our undergraduate student loans include a cosigner.*

What are the requirements for cosigning a private student loan?

Each lender has its own criteria, but general requirements include:

• U.S. Citizenship or permanent residency
• Being at least the age of majority in their state of legal residence, usually 18, 19 or 21
• A valid Social Security number
• Meeting the lender's minimum credit requirements

As a cosigner, having a good to excellent credit score is important. Most credit scores range from 300 to 850, with 850 being considered excellent. Your score is determined by factors such as a having a history of making on-time payments, the current amount of debt and its ratio to your income, as well as the length of your credit history. Another factor that's considered? Your employment history. Most lenders will look at your job status and income and you may also need to supply income tax returns, W2s or other documents during the application process.

Pros of cosigning a student loan

Being a cosigner on a private student loan could help your student in several ways, including:

• Easier qualifying: Students who would not qualify, based on their own income and credit, may be able to obtain a private student loan with a cosigner.
• Better rates: If you have a good or excellent credit rating, the student borrower could qualify for a more favorable interest rate. Of course, a lower rate could mean lower monthly payments and accruing less interest over the life of the loan.
• An opportunity to build credit: Establishing a history of on time student loan payments may allow the student to build a credit history, which could help them get a job, rent an apartment, obtain additional credit, and otherwise reach their financial goals later on in life.

Cons of cosigning a student loan

While cosigning offers benefits to the student, there could be some disadvantages to the cosigner, including:

• Increased risk and financial responsibility: You are jointly responsible for paying back the student loan. If your student can't make the loan payments, you'll be expected to cover these costs. And if you miss a payment, this can negatively impact your credit report too. So before you cosign, you should ask yourself if you could afford to. If the answer is "maybe" or "no," don't do it.
• Credit rating impact: Even when you just apply as a student loan cosigner, your credit score will be impacted, as the lender will do a hard pull on your credit. If you're approved, the loan will increase the debt in your debt-to-income ratio, which could also impact your credit score.
• May reduce ability to obtain future credit: Having a sizable loan could also impact your ability to qualify for loans that you may need for the future, such as a mortgage, car loan, or even a credit card.

What steps should you take if you decide to cosign a private student loan?

If your student still has a college funding gap after maximizing scholarships, grants and federal student aid options, take these steps if you wish to proceed with cosigning for a private student loan:

• Do your homework: Private student loans usually offer variable and fixed interest rates that vary by lender. Variable rates are subject to change, so if you want predictable monthly payments over the entire loan term, consider a fixed rate option. You may also have other repayment options and terms to consider. When reviewing options, make sure you're familiar with the terms of the loan and the default conditions.
• Discuss the borrowing responsibility with the student: The student should fully understand the implications of taking out a loan and the importance of making payments on time. Even one missed payment could result in a negative mark on your credit. They should also understand how much money they will need to pay each month and when payments will be due.
• Have the student enroll in automatic payments: Because you're responsible for the loan if the student doesn't pay, it's a good idea to arrange to have the student enroll in automatic payments, which will help to ensure they pay on time.
• Get a cosigner release: Some student loans offer a cosigner release*, which allows a cosigner to be released from the loan. This can happen if the student meets certain conditions, such as a history of consecutive on-time payments. This is great news for the cosigner, in that you may not have to be responsible for the loan for the full term of the repayment.
• Monitor the student loan payments: Since your credit report will be impacted, it's important to stay on top of the loan to ensure the student is making payments on time.

Ready to learn about all the ways to make education possible?

If you are a parent, guardian, or relative, we know that you're here to help your student at each stage of their college journey. For every family, that support happens in different ways based on distinct goals and circumstances. Cosigning a private student loan can be a big help to your college student, but it also comes with some risk and responsibility. Review all your student loan options and determine if cosigning makes sense for your unique situation. Learn more about how Citizens Student Loans® could help make college possible.