In the 2019-20 academic year, 92% of private, newly originated undergraduate student loans were cosigned.
Agreeing to cosign a student loan is a great option to bolster a student borrower’s chances of receiving a student loan. It can also help the borrower secure more favorable terms, such as competitive interest rates, preferable repayment options, and higher loan amounts.
Before you jump the gun and cosign a student loan for someone, bear in mind that you can do more harm than help, depending on your credit score.
If you have adverse credit history, read this article to learn about what you should take into consideration before cosigning a student loan.
Who Can Cosign a Private Student Loan?
Cosigners are usually parents, grandparents, partners, or close friends to the student borrower, although they can be any individual the borrower would like. To be a cosigner, you must be over 18 years old.
As a cosigner, you should keep in mind that you are contractually obligated to repay the student loan in the allocated period of time if the borrower is unable to do so.
Things to Consider Before Cosigning a Private Loan
- Make sure the borrower has maxed out all possible federal student loan options before pursuing a private student loan. Federal loans usually don’t require a cosigner or credit history, have lower interest rates, and offer options like income-driven repayment and loan forgiveness opportunities.
- Make sure the borrower has looked into federal Direct PLUS loans. Direct PLUS loans are federal loans for graduate students, professional students, and parents of dependent undergraduate students. While Direct PLUS loans require a credit check, they generally have lower interest rates than private student loans.
What Credit Score Do You Need to Be a Cosigner on a Student Loan?
To be approved by a private lender, you will typically need to have a steady income, a minimum FICO credit score of 670 or higher, and a strong credit history.
Does The Borrower’s Credit Score Matter if They Have a Cosigner?
Yes, the borrower’s credit score still matters even if you are cosigning the loan as a reliable, creditworthy individual. Some lenders take the average of the two credit scores, others take the higher of the two credit scores, and some only take the cosigner’s credit score. It truly depends on the lender.
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Can a Cosigner Hurt Your Chances of Getting a Student Loan?
Yes, if you have a lower credit score than the borrower, cosigning the loan could hurt the borrower’s chance of getting a student loan with favorable terms.
The purpose of adding a cosigner to a loan is to lower the overall risk to the lender. By adding a creditworthy cosigner onto a loan, a lender essentially has a second layer of protection when it comes to making sure the loan is paid back. If you have a poor credit score, you could make the overall perceived risk to the lender higher, which would generate less favorable terms. If you have a strong credit score or credit history as a cosigner, the loan application overall will pose less of a risk to the lender, which could generate more favorable terms for the primary borrower.
If cosigning a borrower’s student loan worsens the terms they are able to qualify for, we recommend refraining from cosigning the loan unless the borrower is unable to qualify altogether without a cosigner.
Sparrow can help you explore private student loan options and compare cosigners. We offer services that allow borrowers to see which student loans they’d pre-qualify for on their own and with different cosigners. When debating which parent or grandparent to cosign a private student loan with, Sparrow allows borrowers to input their information and see which individual would be better to cosign with. Most loans do not allow for this pre-check before loan prequalification, so take advantage of this tool. Submit an form with us today to see which loans you qualify for and which cosigner is best.
What Student Loans Can You Get Without a Cosigner?
If cosigning a student loan worsens the terms the borrower is able to qualify for, they may want to opt for a loan that does not require a cosigner. The following are Sparrow’s partners that offer private student loan options that do not require a cosigner.
Arkansas Student Loan Authority
The Arkansas Student Loan Authority (ASLA) is an Arkansas state entity that provides educational funding for all Arkansas students who wish to attend higher education institutions. ASLA does not require a cosigner, however, you will need a credit score of at least 670 to qualify. ASLA is a great option for Arkansas students.
Ascent Non-Cosigned Loans
Ascent is an online lender that offers educational funding for students. They offer three types of student loans: a traditional cosigned loan, a non-cosigned credit-based loan, and a non-cosigned outcomes-based loan. Collectively, the three options provide a great selection for those who do not have a cosigner available, are international or DACA students, or have lower credit scores.
Brazos
Brazos is a non-profit lender offering educational funding through private student loans available only to Texas Residents. They offer a wide range of loan options, covering undergraduate, graduate, MBA, law, medical, dental, veterinary, and doctoral degree programs. While you can qualify for a loan with Brazos without a cosigner, their eligibility criteria is fairly strict. To qualify, you must have a credit score of 720 or higher and an income of $60,000+. Brazos is a great option if you live in Texas, have strong credit, and want competitive interest rates.
College Ave Student Loans
College Ave Student Loans offers educational funding for undergraduate, graduate, professional, and career school students, and parents of students. To qualify for a student loan with College Ave without a cosigner, you will need a credit score in the mid-600s. College Ave is a great option if you are seeking a more flexible repayment term that allows you to find a loan that matches your budget.
Earnest
Earnest’s student loans provide funding to undergraduate, graduate, and professional students. If applying without a cosigner, you’ll need to meet Earnest’s minimum credit score requirement of 650. You will also have fewer options when it comes to repayment, leaving you with either a 5 or 7-year repayment period. Earnest is a great option if you are seeking competitive interest rates, unique borrower perks, and flexible repayment options that allow you to find a loan that matches your budget.
Funding U
Funding U is an online lender that focuses exclusively on undergraduate students with no cosigner. Rather than looking at your credit score or income, Funding U looks at non-traditional metrics such as your school, major, GPA and estimated future earnings to assess your creditworthiness. Funding U’s student loan is best if you are a high-achieving undergraduate student with limited credit history and no access to a creditworthy cosigner.
LendKey
LendKey is an institution that offers educational funding to undergraduate and graduate students. By connecting borrowers with a network of 100+ lesser-known credit unions and community banks, LendKey allows you to work with smaller lenders with low rates and good customer service, rather than traditional lending institutions. LendKey has a proprietary scoring model that assesses your creditworthiness by looking at standard metrics such as your credit score in combination with non-traditional metrics such as your GPA and major. This offers a bit of flexibility for those applying without a cosigner. LendKey is best for students who want a variety of options, competitive interest rates, and generous forbearance policies.
MPOWER
MPOWER is an online lender that offers educational funding to international, domestic, and DACA students. They offer non-cosigned undergraduate and graduate student loans. It is best for international students and DACA students who don’t have a credit history and can’t access a qualified cosigner.
Nelnet Bank
Nelnet Bank offers private student loans for undergraduate, graduate, MBA, law, and health professional students. While you can qualify for a loan with Nelnet Bank without a cosigner, their eligibility criteria is fairly strict. To qualify, you will need a credit score of at 680 or higher and an income of $36,000. It’s best if you are seeking competitive rates, a variety of repayment terms, and a flexible forbearance policy.
Prodigy Finance
Prodigy Finance is an online lender that provides funding to international students. They offer non-cosigned graduate student loans. They’re a good option for international students who don’t have a credit history and can’t access a qualified cosigner.
Sallie Mae
Sallie Mae is an online lender that provides educational funding to students. They offer cosigned and non-cosigned undergraduate, graduate, and career training student loans. To qualify for a student loan with Sallie Mae, you must have a credit score in the mid-600s. They’re a good option for students seeking competitive interest rates with a creditworthy cosigner.
SoFi
SoFi began offering private student loans in 2019 and has quickly become a strong option for undergraduates, graduates, law and MBA students, and parents looking to fund the cost of their child’s education. SoFi does not disclose their minimum credit requirements for student loans, so while you may be able to get a loan without a cosigner through them, you may need a higher credit score to do so. If you do qualify, SoFi will offer you competitive interest rates, a diverse set of repayment options, and exclusive member benefits.
Without a cosigner, the borrower’s interest rate may be higher. So, as you are exploring loan options, consider selecting a lender with the option to enroll in automatic payments. An automatic payment does exactly what its name implies: the lender sets up automatic payments from your bank account so that you don’t have to manually complete your monthly payments.
This is beneficial for both you and the lender if you have sufficient funds in your bank account. As payments come out automatically, you won’t miss a payment and the lender is guaranteed to receive a payment every month. In return, private student loan lenders usually offer an interest rate reduction of 0.25% or even 0.50% if you opt-in to their automatic payment. This can save borrowers a significant amount over the life of the loan.
Closing Thoughts From The Nest
Before cosigning a private student loan, you should consider a variety of factors. Factors like credit score, income stability, and credit history are important to think about when aiming to bolster the borrower’s chances of being approved for a private loan with favorable terms.
You’ll also want to account for loan eligibility. Make sure the school the borrower intends to pay for accepts the loan you intend to cosign for.
Before you begin making hard inquiries on private loan options that can negatively impact your credit score, use Sparrow’s online tool to see whether cosigning is the right choice or not.
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