Your Guide to Student Loans Without a Cosigner
As student loans continue to make up the second largest debt market in the United States, studies show that more students are turning to federally backed loans rather than private lenders such as banks and credit unions. While this may be good for student borrowers, as federal loans can come with more lenient terms and interest rates, private loans – especially acquiring student loans without a cosigner – can have long-term financial advantages for students.
Issues can arise, however, when students apply for private loans by themselves. A 2012 report from the Consumer Finance Protection Bureau and the Department of Education showed that by 2011, more than 90 percent of new student loans were acquired with a cosigner, who is often a parent, grandparent, or other trusted friend or family member. Finding a cosigner, however, can be difficult because you are asking someone to take responsibility for the loan if you can’t make your loan payments, adding your debt to their credit history.
If your search for a cosigner comes up empty or you decide you’d rather apply without one, it’s still possible to get a student loan.
Why consider getting student loans without parents
Admittedly, it’s much easier to get a student loan with a cosigner. However, cosigners can bring their own problems to a loan. If a cosigner dies, for example, the terms of your loan may make it due in full immediately.
Students who are taking a long-term approach to their finances and credit history could benefit greatly from getting a private student loan without cosigners. Initially qualifying for the loan itself will require you to secure a steady income and meet stricter credit requirements, which means you already will be in a good financial position. If you make timely payments on a no-cosigner loan, you can continue building a solid credit history and will be in a good position to apply for other loans, including a mortgage and auto loan, in the future.
In short, if you’re in a good financial situation already and are wary of cosigners, applying for student loans without parents could be a good choice.
Disadvantages of no-cosigner student loans
On top of being difficult to qualify for, no-cosigner student loans can come with higher interest rates, less flexible repayment terms, and harsher penalties for nonpayment.
If you shop around for student loans, however, and have good financial credentials, it is possible to secure a decent rate and terms on a private no-cosigner student loan.
Federal student loans without a cosigner
The easiest way to get student loans without a cosigner is to apply for a federal student loan, which will not require a credit check or a cosigner. Financial experts advise students to first maximize their federal aid before applying for private loans, as federal student loans come with low interest rates and viable options for students who can’t repay their debt.
To apply for federal student loans, borrowers first should fill out a Free Application for Student Financial Aid. Options will include Stafford loans, Perkins loans, and PLUS loans.
How to get private student loans without cosigner
According to the CFPB, about 90 percent of private student loans require a cosigner. While that means getting student loans without a cosigner can be difficult, it can be done. Here’s how.
1. Establish good credit
First, you need to build a good credit score, as lenders typically will look for a score of at least 660. There are several ways to do this, and they all require personal financial responsibility.
- If you are a teenager, ask your parents if you can become an authorized user on one of their credit cards. This can allow you to “piggyback,” which means your parents’ good credit rating can give your credit rating a boost. It also allows your parents to monitor your spending and help you learn how to responsibly manage and pay off monthly debt.
- While lenders have become less likely to offer credit cards to teenagers, if you have an income you may be able to successfully apply for one without a cosigner. As you pay your monthly bills in full and on time, you will begin to build a good credit score.
- If you are a teenager or a young adult and have any kind of bills or dues, pay them on time and in full. Credit scores now are developed using a wide range of factors for young people, including whether applicants responsibly handle everything from rent to taxes. They may even look at whether you pay your library fees and traffic fines on time.
2. Have a decent income
Applicants for private students loans without a cosigner also need to prove that they have a good income. Financial advisers suggest a target income of about $25,000 annually for the best chances of getting approved for a private student loan.
This income goal can be daunting for a full-time college student, but there are ways to achieve it. One way is to cobble together a good summer job with a part-time job during the school year, although finding high-paying jobs in this situation can be difficult. Other possibilities include freelancing, consulting, or non-traditional jobs such as driving for Uber.
3. Shop around for the best rates
The interest rate and terms you receive on your private student loan can make a big difference in your monthly payments, which will be especially important as you budget your post-college income. This is why it is crucial to comparison shop when on your student loan hunt. Utilizing online comparison sites, like LendingTree, can help you to find the best loan to finance your education. While comparing, be sure to research lenders’ loan repayment terms, what happens if you default or miss payments, as well as origination fees.
What to expect when applying without a cosigner
When you apply for a private student loan without a cosigner, you’ll be asked to provide a variety of information about your financial and personal background. Lenders will do a credit check and may ask about everything from your choice of school to your major. Be prepared to provide documents about your income and other expenses.
Be aware that it can be difficult for a college student to be approved for a private student loan without a cosigner. If you do not receive the loan, you may want to consider putting off college until you can improve your credit score and increase your income, or applying to a more affordable school. While those options may seem extreme, they could result in you securing an education and a better financial future.