Do Parents Have to Cosign on Student Loans? And Is It a Good Idea?
Do parents have to cosign on student loans? If you’re borrowing federal student loans from the Department of Education, the answer is usually no. But if you need a private student loan, you’ll need a cosigner if you can’t meet requirements for income and credit on your own.
Even if you can get approved, adding a cosigner to your application could help you secure better rates. However, there are some downsides to having your parents cosign a student loan.
Let’s take a closer look at:
Before we get to cosigning student loan pros and cons, let’s review why you might need a cosigner in the first place.
If scholarships, grants and federal student loans aren’t enough to foot the bill for college, you might need to take out a private student loan, which will likely require you to get a cosigner. Roughly 90% of private student loans are originated with a cosigner, according to the Consumer Financial Protection Bureau (CFPB).
Private lenders might ask you for a cosigner if you don’t have a positive or robust credit history. After all, any potential lender wants to make sure you’d repay the debt you owe. That’s where parents come in — with their credit history, if they agree to cosign on a loan, that signals to the lender that the debt will more likely be repaid on time and in full.
Since your cosigner’s credit history is considered when you take out a loan, you might qualify for a lower interest rate. However, their name will also appear on the loan — so if you fail to keep up with payments after you leave school, they will be held responsible for repayment.
You might think that having a parent cosign a private loan could be nothing but good. After all, they’d be helping you afford college.
But before you and your parent(s) agree to this arrangement, know that there are downsides:
When you go off to college, you’re taking a big step toward adulthood. You’re likely even moving out of the family home.
And even if you’re still a dependent in the eyes of the Department of Education, you’re taking one step toward being financially independent. At college, you’ll be responsible for managing your everyday expenses, such as campus meal plans and school books.
Taking out a loan with support from your parent(s) could be a step backward, creating a tether between you and them that’ll last years. Still, this leash connecting you to your parent(s) might not be enough to get you thinking about getting student loans without cosigners.
You might be OK with leaning on a parent to cosign your student loan. But you might be less thrilled with putting them in the unpleasant position of having to repay your loan if you need help down the line.
A cosigner is not only your backup plan, they’re also your lender’s. If you struggle to find regular income after graduating college, for example, you might need to rely on your parent(s) for help in repayment. Even if you hesitate to ask your parent(s), your lender won’t.
Before asking a family member to cosign your loan, consider whether they’re in a good spot to help. If a parent already has debt, asking them to potentially shoulder more might be an unfair request.
The same could be true if you have younger siblings who’ll be following in your footsteps to college — they’ll likely need financial backing, too.
Reputable private lenders offering student loans typically tack on the perk of cosigner release. It allows you to remove a parent from a loan they cosigned once you can prove your ability to repay it.
But receiving it is another story — according to the CFPB, nine out of 10 private loan borrowers who apply for cosigner release are rejected.
At Sallie Mae, for example, borrowers must clear 10 hurdles to qualify for cosigner release. Some of the list’s more complicated items include providing proof of income and submitting to a credit check.
The key hurdle is making on-time payments on your loan. Although Sallie Mae sets the bar at 12 months, this can vary by lender. At CommonBond, for example, you must make 24 consecutive on-time payments before applying.
Lenders also have different processes for applying for or granting cosigner release. There are several steps to qualifying for cosigner release with Navient, for example.
Although you don’t want to imagine this scenario, it could help you prepare for the consequences. You can do this by reading your loan agreement to see what conditions your lender might have set in the event your cosigner passes away.
In this scenario, you’d still be responsible for repaying the loan. But with some less-reputable lenders, your cosigner’s death could trigger an automatic default, the CFPB has reported.
In cases where your cosigner dies, you’ll lose a loved one. But that awful situation could be made even worse if you find yourself with debt in default.
Before turning to a private student loan, it’s a good idea to max out your eligibility for federal student loans. Every federal loan option besides PLUS loans, including direct subsidized loans and direct unsubsidized loans, can be applied for and granted without a cosigner.
Federal loans tend to come with low interest rates, flexible repayment terms and other borrower protections. But they also come with borrowing limits, so you might need additional funding for school.
In this case, it could make sense to borrow a private student loan. If you’re wary of using a cosigner, you can shop around to see if any lenders will approve you on your own. College Ave, for example, has a credit prequalification tool to see what rates you could qualify for depending on your individual credit history.
Note that credit history is the primary factor affecting a quote you’ll receive from a lender. As a high school graduate, you likely haven’t had much time to build up your credit score just yet. Though even if you do have an exceptional credit score for your age, be aware that adding a creditworthy cosigner could lower your rate even further.
Before focusing on a private student loan without cosigner requirements, make sure you meet the basic criteria, such as attending an eligible school. Then you can explore ways to receive a discount on your interest rate, such as by promising to make in-school payments. These benefits could make student loans without a cosigner more realistic.
You might Google “cosigning student loan pros and cons” and hope for a black-and-white answer. The truth is that when it comes to cosigners and student loans, it’s best to look at your options in your context, and no one else’s. There’s a gray area when it comes to the positives and negatives of taking out a private loan alone.
If you have a parent who’s willing and financially able to cosign, they could help you score a lower interest rate than you’d likely be able to qualify for on your own — just be sure to weigh the surprising downsides before deciding to move forward.
If your parent(s) aren’t an option, don’t consider yourself stuck looking at student loans without cosigner requirements. You can explore alternative cosigner options before going at it alone.