While many students opt to apply for student loans in order to pay their college tab, there are situations in which a borrower may not be able to qualify for these funds on their own. In this case, it is likely that they will need to turn to a cosigner.
A cosigner on a loan is defined as an individual other than the actual borrower who also signs their name on the promissory note for a loan. This essentially gives the cosigner an equal amount of liability for the borrowed funds. And, if the primary borrower does not make good on their loan repayments, it can have a negative effect on the cosigner’s credit as well.
Who is Allowed to Cosign on a Student Loan?
When it comes to the borrowing of funds for college, oftentimes the cosigner on a student’s borrowed funds is a parent or other type of guardian. However, that does not always have to be the case.
In fact, a student loan cosigner can essentially be anybody who is willing to do so provided that the individual has good credit, as this will help the student borrower in obtaining their needed funds.
Other qualities of a good cosigner may include:
- A permanent United States address
- Reliable and steady employment with enough income to be able to successfully meet their own debt obligations, as well as the potential new loan payment
- A small amount of other debt
- No negative items listed on their credit report
- No judgments, bankruptcies, foreclosures, or charge-offs on their credit record
- No, or a limited number of past-due payments on credit card accounts or consumer loans
- No federal debt delinquencies or outstanding federal liens
- No student loan defaults
It is important to keep in mind that the cosigner should be someone who has a good credit history, as the reason that the cosigner is needed is to help the student borrower obtain the funds that they need. Therefore, if an individual does not possess a good credit history, then it is unlikely that they would make for a good cosigner.
In addition, even though a cosigner may be very credit worthy, this still does not guarantee that the student loan will be approved. In many cases, an unsatisfactory credit rating by the student can still adversely affect the approval decision by the student loan lender.
How to Stay in Good Standing with a Cosigner
When cosigning on a loan, the cosigner is taking on a very big risk especially in the case of unsecured debt such as a student loan. Therefore, the cosigner needs to understand that there is the possibility that due to unemployment or other unforeseen circumstances, the student borrower may not be able to repay the loaned funds even following their graduation from college.
This means that the cosigner could either become completely liable for making the student loan payments, or worse, they may forgo making the payments altogether and risk their good credit record being negatively affected.
For this reason, it is essential to ensure a potential cosigner that the payments on a student loan will be made and if an adverse financial situation should come about, it is always good to have a back-up financial plan.