Some student loan lenders now use the term co-borrower instead of the more traditional term, cosigner.
While this terminology change is arguably a positive for consumers, it also creates some confusion. Co-borrower and cosigner sound very similar, yet there are significant differences between the two roles. However, these differences don’t really make sense in the context of student loans.
Confused yet?
After reading this short article, the entire situation will make much more sense.
The Traditional Difference Between a Co-Borrower and Cosigner
Both a co-borrower and a cosigner are legally responsible for repaying the debt they sign. However, the purposes behind co-borrowing and consigning are very different.
When a cosigner gets added to a loan, it is to help a borrower who cannot qualify for the loan independently. The cosigner exists entirely to help the primary borrower. The primary borrower has to repay the loan. If the primary borrower fails to repay the loan, the responsibly shifts to the cosigner.
In a traditional co-borrower situation, there is no primary borrower. Both borrowers benefit from the loan, and they repay the loan together. They also share ownership of the underlying asset of the loan. A classic example is a car purchase. If two people use a car jointly and share ownership, they may apply for an auto loan as co-borrowers.
Co-Borrowing Doesn’t Make Sense for Student Loans
Using the traditional definition of a co-borrower doesn’t work in the context of student debt.
With student loans, there is still a primary borrower. One person gets the knowledge and the degree. The other person receives no benefit. The other person on the loan exists only to help the primary borrower qualify.
A co-borrower on a student loan looks and sounds exactly like a cosigner.
To get to the bottom of this issue, I reached out directly to a student loan lender that uses the terms co-borrower and cosigner in their advertising materials. After some internal discussion, the lender explained that they used the terms interchangeably and that there was no difference.
Why a New Term is Better for Student Loans
To recap, a co-borrower and a cosigner are different jobs. However, for student loans, they are identical.
While the terminology distinction is confusing, shifting typical student loan language from cosigners to co-borrowers might be for the best.
In running a student loan site, I have frequent interactions with student loan borrowers. Many of these borrowers are cosigners who didn’t realize the commitment they were making when they signed for the loan. Students learn they need a cosigner, so they reach out to parents, friends, and family until they find someone to help qualify for the loan. People rarely read the full language of a student loan contract.
Calling someone a co-borrower might help consumers more readily understand their role. If you cosign a loan, you do it for the borrower. If you co-borrow a loan, you do it with the borrower. The term co-borrower implies a responsibility for the debt. If the average consumer thinks co-borrowing is a bigger commitment than consigning, lenders should use the term co-borrowing.
Additional clarity could help many future borrowers and their families.
Finding A Student Loan Co-Borrower
If you are looking for a co-borrower to get a student loan or to refinance a student loan, you need to find someone:
- creditworthy, and
- willing to sign the loan paperwork.
This guide to finding a student loan cosigner will also apply to finding a co-borrower.
Getting a Co-Borrower Released from a Student Loan
If you are a co-borrower or have a co-borrower who wants released from a loan, there are several ways to accomplish this task.
Many lenders may offer a “co-borrower release” to “creditworthy borrowers,” but this is often the most difficult way of securing a release. If a lender has two people legally responsible for a loan, they have minimal incentive to drop it down to one.
Fortunately, there are ways to get released from the loan without asking permission from the lender.
