For many borrowers, finding a co-signer is an essential step in the student loan process. It doesn’t matter whether you are getting a new student loan, refinancing your student loan, or consolidating your student loans.
Unfortunately, finding the right person isn’t always easy. Because co-signing a student loan is a huge financial commitment and financial risk, the co-singer/borrower relationship is a tricky one. This guide was designed to help you navigate potential issues and find the perfect situation for everyone involved.
Picking a Co-Signer
Typically co-signers are parents or immediate family members, but a family relationship is not a requirement. There really are only two requirements for a co-singer: they have to have good credit and they need to be willing to sign.
One thing to keep in mind when you are considering a potential co-signer is the impact co-signing will have on their finances. They will be assuming the debt if you fail to pay your student loans. Even if you do make all of your payments on time, the loan still appears on the co-signers credit report. As a result, it is best to select a co-signer who does not plan on making a big purchase, such as a house, in the near future.
You should also make sure to pick someone who can afford to pay back the loan. If you fail to pay they will become responsible. If they can’t afford the loan, a default could ruin their credit as well as yours.
Once you find the person in your life who you think has the necessary credit, you will have to…
Convince them to Co-Sign your Student Loan
The first and most important thing to know is that nobody “has to” sign anything for you. Just because you are about to go off to college doesn’t mean your parents are obligated to sign whatever document you put in front of them.
Before you try and get someone to co-sign a loan for you, make sure you exhaust all other means of finance. Apply for every scholarship you can. Talk to your schools Financial Aid Office and try to get every grant under the sun. Make sure you fill out the FAFSA and get every federal dollar available. Remember that Federal Loans are better than private loans.
Once you reach the point where resorting to a private loan is your only option, you need to make sure you find the best student loan available. Have you found the lowest interest rate? Is it fixed or variable? Are there any loan origination fees?
Another thing you will want to look into for your co-signer is co-singer release programs. Some lenders will release co-signers from the student loan if the student has made a certain number of on-time payments. Learn everything you can about these programs and be prepared to explain it to your co-signer.
Present your plan to you cosigner. Talk about how you have nowhere else to go for money. Explain why the lender you have selected is the best one. Talk about your plan to pay back the loan. (One good practice would be to pay down the interest while you are in school.) Talk to your co-signer about you major, expected salary, and your plan to make sure you pay off the loan. Have a plan B and explain that to them as well.
Co-signing a loan is a big risk, the more you can do to show that co-signing a loan for you is not a big risk, the more likely they will be to help.
Special Note for Consolidation
If you are refinancing a loan or consolidating your student loans, you may also need a co-signer. One thing to consider is that often you will be going back to the original co-signer for help with the consolidation. Explain to them how consolidation can help your credit. If they co-signed your original loans, it could help their credit for the exact same reasons. Finally, remind them that if you are able to get a lower interest rate, it will increase your ability to pay off your loan.
Co-signing a student loan is a big deal. Don’t mislead the person that you are asking to co-sign your loan. Explain to them exactly the financial commitment they are making. They may already understand the commitment, but if you explain it to them, it shows that you understand and that you did your research.
Ultimately your relationships with your friends and family are far more important than any financial document or agreement. As a result it is very important that you are honest throughout the process, and do everything you can do to honor your commitments. Finding the right student loan is tricky and you don’t want a poor selection to have a negative impact on an important relationship in your life.
The best way to say thank you to a co-signer is to pay your bill each month. Also, if you are struggling, keep your co-signer in the loop. They have a huge financial interest in your ability to pay back the loan. You really don’t want you co-singer to get a surprise call from Sallie Mae saying that you are behind.
You should also be sure to come up with some sort of special thank you. This can be done over the holidays. It is important to do this long after the loan has been signed because it reminds your co-signer that you appreciate the risk they took for you and that you have not forgotten.
You should never get a student loan that you don’t think you will be able to pay back. This is especially important if you are asking someone to assume the risk of your failure to pay back a loan. Assuming that once you graduate college you will make enough money is a terrible idea. Know exactly how much your loan will cost and how much you reasonably expect to be making when you graduate. Don’t jeopardize an important relationship in your life because you didn’t take the time to do the math or find the best loan available.
Readers: Have you ever co-signed a student loan? Has anyone ever co-signed a student loan for you? What tips do you have for making this arrangement work?