Cosigning is a popular practice in the world of private student loans. Most students do not have sufficient enough credit histories to qualify for competitive private loans on their own, which is why a cosigner steps in to help. However, at this point you may be wondering, “does cosigning a student loan affect my credit?”
If your child, relative, or close friend ask you to cosign for a private student loan, be informed before making a decision. Cosigning a private student loan is a hefty decision to make, and there are ways it could hurt your credit.
What is a Private Student Loan Cosigner?
A private student loan cosigner is an individual who agrees to sign onto a private student loan alongside the borrower, often in cases where the borrower can’t qualify for the loan or receive favorable terms on their own.
Because cosigners are equally responsible for repaying the loan, any missed payments by the primary borrower ultimately become the cosigner’s responsibility. Likewise, if the primary borrower causes the loan to go into default, you are responsible for the loan as the cosigner.
In the 2019-2020 academic year, 92% of private undergraduate student loans and 63% of private graduate student loans were cosigned.
Why Would a Cosigner Be Necessary?
In many cases, students are unable to qualify for private loans or receive favorable loan terms without a cosigner. In short, private lenders want to know that they will be getting their money back when lending to people. So, due to students’ limited credit history, often due to their age, students can be risky investments for lenders. By tacking on a cosigner with a strong credit history to a student loan, lenders can be more confident that their money will be returned in full over time.
>> MORE: How and where to get private student loans for bad credit:
A student with a cosigner is more likely to repay their loan on time and in full as opposed to a student without one. So, with a cosigner, the chance of receiving the best possible private loan is significantly higher.
Unlike private student loans, federal student loans do not require a cosigner. Students are able to borrow loans that they qualify for based on their Free Application for Federal Student Aid (FAFSA) application.
However, if a student is looking to take out a private student loan, a cosigner will almost always be necessary.
>> MORE: Can you get an international student loan without a cosigner?
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Does Cosigning Hurt My Credit?
Cosigning a student loan can affect your credit both positively and negatively. Consider the advantages and drawbacks before making the decision to cosign.
How It Hurts Your Credit
#1: A Hard Inquiry
When you cosign a private student loan, most private lenders will request for a hard inquiry, or access to review your credit report. Hard inquiries can hurt your credit score by up to 10 points, though the damage is only temporary.
While a hard inquiry will only lower your credit score temporarily, it is important not to open too many credit lines at once. Having multiple hard inquiries can lower your credit score significantly and may seem like you are overextending yourself financially, which isn’t appealing to lenders.
#2: Potential Default
If the primary borrower defaults on the student loan, the default will appear on both of your credit histories. Furthermore, your credit score and chances of opening new credit lines will be severely harmed.
Your loan contract (also known as a promissory note) specifies how many missed payments you can have before your loan enters into default. Before cosigning a student loan, be sure to thoroughly read the loan terms and have a serious conversation with the primary borrower.
#3: Potential for Late Payments
As a cosigner, you are legally responsible for the loan, just like the primary borrower. If the primary borrower misses a payment or makes late payments, these actions can hurt your credit. Keep this in mind before shouldering this financial responsibility.
How It Can Help Your Credit
#1: Diversified Credit Mix
10% of your FICO score is made up by your credit mix. If you have multiple lines of credit, this can actually boost your credit score. Make sure to make all your payments on time and in full to remain in good credit standing.
#2: New Credit Line
Adding a new credit line to your credit history can minimally boost your score. However, it is crucial for the primary borrower to make payments on time and in full so that there are no negative implications for the both of you.
What Are the Other Risks of Being a Cosigner?
Change in Debt-To-Income Ratio
Private student loan lenders measure a borrower’s credit reliability with the debt-to-income ratio. Your debt-to-income ratio (DTI) is measured by comparing the amount of debt you have to your pre-tax income.
For example, let’s say that you earn $1,500 every month before taxes. Your car payment, mortgage, and credit card payments total up to $750. 750 divided by 1,500 is .5, making your debt-to-income ratio 50%.
There are two types of debt-to-income ratios that may be impacted – your back-end ratio and your front-end ratio. Your back-end ratio (all your monthly debt payments divided by your pre-tax income) is considered healthy when lower than 36%. Your front-end ratio, or only your housing expenses divided by your pre-tax income, should be no more than 28%. In general, though, the lower your debt-to-income ratio is, the better it looks to lenders.
If your back-end DTI is higher than 36%, it’s not recommended for you to cosign for a private student loan. If the student loan is approved, your DTI will only get higher and look more unfavorable to lenders.
Varying Cosigner Release Terms
Some private student lenders offer cosigner release options. This option allows for cosigners to remove themselves from the loan and no longer be liable for it. Generally, a cosigner can be released from the loan if the primary borrower has made a certain number of payments on time and in full.
If the private student loan you are cosigning does not offer a cosigner release option, you may be locked into the loan until it is fully paid off. The only way around that is if the primary borrower chooses to refinance the loan and does not have you cosign the new loan.
>> MORE: Should I refinance my student loan?
Student loan rates from our partners
Ascent
Ascent’s undergraduate and graduate student loans are funded by Bank of Lake Mills, or DR Bank, each Member FDIC. Loan products may not be available in certain jurisdictions. Certain restrictions, limitations; and terms and conditions may apply. For Ascent Terms and Conditions please visit: www.AscentFunding.com/Ts&Cs. Rates are effective as of 5/1/2024 and reflect an automatic payment discount of either 0.25% (for credit-based loans) OR 1.00% (for undergraduate outcomes-based loans). Automatic Payment Discount is available if the borrower is enrolled in automatic payments from their personal checking account and the amount is successfully withdrawn from the authorized bank account each month. For Ascent rates and repayment examples please visit: AscentFunding.com/Rates. 1% Cash Back Graduation Reward subject to terms and conditions. Cosigned Credit-Based Loan student must meet certain minimum credit criteria. The minimum score required is subject to change and may depend on the credit score of your cosigner. Lowest rates require interest-only payments, the shortest loan term, a cosigner, and are only available for our most creditworthy applicants and cosigners with the highest average credit scores. Actual APR offered may be higher or lower than the repayment examples above, based on the amount of time you spend in school and any grace period you have before repayment begins.
Ascent’s undergraduate and graduate student loans are funded by Bank of Lake Mills, or DR Bank, each Member FDIC. Loan products may not be available in certain jurisdictions. Certain restrictions, limitations; and terms and conditions may apply. For Ascent Terms and Conditions please visit: www.AscentFunding.com/Ts&Cs. Rates are effective as of 5/1/2024 and reflect an automatic payment discount of either 0.25% (for credit-based loans) OR 1.00% (for undergraduate outcomes-based loans). Automatic Payment Discount is available if the borrower is enrolled in automatic payments from their personal checking account and the amount is successfully withdrawn from the authorized bank account each month. For Ascent rates and repayment examples please visit: AscentFunding.com/Rates. 1% Cash Back Graduation Reward subject to terms and conditions. Cosigned Credit-Based Loan student must meet certain minimum credit criteria. The minimum score required is subject to change and may depend on the credit score of your cosigner. Lowest rates require interest-only payments, the shortest loan term, a cosigner, and are only available for our most creditworthy applicants and cosigners with the highest average credit scores. Actual APR offered may be higher or lower than the repayment examples above, based on the amount of time you spend in school and any grace period you have before repayment begins.
LendKey
1 – Terms and Conditions Apply
Loan products, terms, and benefits may be modified or discontinued by participating lenders at any time without notice. Rates displayed are reserved for the most creditworthy consumers who enroll to make automatic monthly payments. Your initial rate will be determined after a review of your application and credit profile. Variable rates may increase after consummation. You must be either a U.S. citizen or Permanent Resident in an eligible state and from an eligible school, and meet the lender’s credit and income requirements to qualify for a loan. Certain membership requirements (including the opening of a share account, a minimum share account deposit, and the payment of any applicable association fees in connection with membership) may apply in the event that an applicant wishes to apply with, and accept a loan offered from, a credit union lender. If you are not a member of the credit union lender, you may apply and become a member during the loan application process if you meet the lender’s eligibility criteria. Applying with a creditworthy cosigner may result in a better chance of loan approval and/or lower interest rate. Loans for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not available via LendKey.com.
2 – Cosigner Release
Some lenders participating on LendKey.com may offer the benefit of cosigner release. Cosigner release is subject to lender approval. In order to qualify, the borrower, alone, must meet the following requirements: (1) Make the required number of consecutive, on-time full principal and interest payments as indicated in the borrower’s credit agreement during the repayment period (excluding interest-only payments) immediately prior to the request. Any period of forbearance will reset the repayment clock; (2) The account cannot be in delinquent status; (3) The borrower must provide proof of income indicating that he/she meets the income requirements and pass a credit review demonstrating that he/she has a satisfactory credit history and the ability to assume full responsibility of loan repayment; (4) No bankruptcies or foreclosures in the last sixty months; and (5) No loan defaults.
3 – Autopay Rate Reduction
Subject to floor rate and may require the automatic payments be made from a checking or savings account with the lender. The rate reduction will be removed and the rate will be increased by 0.25% upon any cancellation or failed collection attempt of the automatic payment and will be suspended during any period of deferment or forbearance. As a result, during the forbearance or suspension period, and/or if the automatic payment is canceled, any increase will take the form of higher payments.
4 – AutoPay Discount & Lowest Interest Rate
Subject to floor rate and may require the automatic payments be made from a checking or savings account with the lender. The rate reduction will be removed and the rate will be increased by 0.25% upon any cancellation or failed collection attempt of the automatic payment and will be suspended during any period of deferment or forbearance. As a result, during the forbearance or suspension period, and/or if the automatic payment is canceled, any increase will take the form of higher payments. The lowest advertised APR is only available for loan terms of 10 years and is reserved for the highest qualified applicants, taking into consideration the applicant’s credit and other factors.
1 – Terms and Conditions Apply
Loan products, terms, and benefits may be modified or discontinued by participating lenders at any time without notice. Rates displayed are reserved for the most creditworthy consumers who enroll to make automatic monthly payments. Your initial rate will be determined after a review of your application and credit profile. Variable rates may increase after consummation. You must be either a U.S. citizen or Permanent Resident in an eligible state and from an eligible school, and meet the lender’s credit and income requirements to qualify for a loan. Certain membership requirements (including the opening of a share account, a minimum share account deposit, and the payment of any applicable association fees in connection with membership) may apply in the event that an applicant wishes to apply with, and accept a loan offered from, a credit union lender. If you are not a member of the credit union lender, you may apply and become a member during the loan application process if you meet the lender’s eligibility criteria. Applying with a creditworthy cosigner may result in a better chance of loan approval and/or lower interest rate. Loans for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not available via LendKey.com.
2 – Cosigner Release
Some lenders participating on LendKey.com may offer the benefit of cosigner release. Cosigner release is subject to lender approval. In order to qualify, the borrower, alone, must meet the following requirements: (1) Make the required number of consecutive, on-time full principal and interest payments as indicated in the borrower’s credit agreement during the repayment period (excluding interest-only payments) immediately prior to the request. Any period of forbearance will reset the repayment clock; (2) The account cannot be in delinquent status; (3) The borrower must provide proof of income indicating that he/she meets the income requirements and pass a credit review demonstrating that he/she has a satisfactory credit history and the ability to assume full responsibility of loan repayment; (4) No bankruptcies or foreclosures in the last sixty months; and (5) No loan defaults.
3 – Autopay Rate Reduction
Subject to floor rate and may require the automatic payments be made from a checking or savings account with the lender. The rate reduction will be removed and the rate will be increased by 0.25% upon any cancellation or failed collection attempt of the automatic payment and will be suspended during any period of deferment or forbearance. As a result, during the forbearance or suspension period, and/or if the automatic payment is canceled, any increase will take the form of higher payments.
4 – AutoPay Discount & Lowest Interest Rate
Subject to floor rate and may require the automatic payments be made from a checking or savings account with the lender. The rate reduction will be removed and the rate will be increased by 0.25% upon any cancellation or failed collection attempt of the automatic payment and will be suspended during any period of deferment or forbearance. As a result, during the forbearance or suspension period, and/or if the automatic payment is canceled, any increase will take the form of higher payments. The lowest advertised APR is only available for loan terms of 10 years and is reserved for the highest qualified applicants, taking into consideration the applicant’s credit and other factors.
Earnest
Auto Pay Discount Disclosure
You can take advantage of the Auto Pay interest rate reduction by setting up and maintaining active and automatic ACH withdrawal of your loan payment. The interest rate reduction for Auto Pay will be available only while your loan is enrolled in Auto Pay. Interest rate incentives for utilizing Auto Pay may not be combined with certain private student loan repayment programs that also offer an interest rate reduction. For multi-party loans, only one party may enroll in Auto Pay.
Student Loan Origination (Private Student Loan) Interest Rate Disclosure
Actual rate and available repayment terms will vary based on your income. Fixed rates range from 4.36% APR to 16.15% APR (excludes 0.25% Auto Pay discount). Variable rates range from 5.87% APR to 16.45% APR (excludes 0.25% Auto Pay discount). Earnest variable interest rate student loan origination loans are based on a publicly available index, the 30-day Average Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of New York. The variable rate is based on the rate published on the 25th day, or the next business day, of the preceding calendar month, rounded to the nearest hundredth of a percent. The rate will not increase more than once per month. Although the rate will vary after you are approved, it will never exceed 36% (the maximum allowable for this loan). Please note, Earnest Private Student Loans are not available in Nevada. Our lowest rates are only available for our most credit qualified borrowers and contain our .25% auto pay discount from a checking or savings account. It is important to note that the 0.25% Auto Pay discount is not available while loan payments are deferred.
Earnest Private Student Loans are made by One American Bank, Member FDIC, or FinWise Bank, Member FDIC. One American Bank, 515 S. Minnesota Ave, Sioux Falls, SD 57104. Finwise Bank, 756 East Winchester, Suite 100, Murray, UT 84107
Earnest loans are serviced by Earnest Operations LLC, 535 Mission St., Suite 1663 San Francisco, CA 94105, NMLS #1204917, with support From Navient Solutions, LLC (NMLS #212430). One American Bank, FinWise Bank, and Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by agencies of the United States of America.
© 2024 Earnest LLC. All rights reserved.
Auto Pay Discount Disclosure
You can take advantage of the Auto Pay interest rate reduction by setting up and maintaining active and automatic ACH withdrawal of your loan payment. The interest rate reduction for Auto Pay will be available only while your loan is enrolled in Auto Pay. Interest rate incentives for utilizing Auto Pay may not be combined with certain private student loan repayment programs that also offer an interest rate reduction. For multi-party loans, only one party may enroll in Auto Pay.
Student Loan Origination (Private Student Loan) Interest Rate Disclosure
Actual rate and available repayment terms will vary based on your income. Fixed rates range from 4.36% APR to 16.15% APR (excludes 0.25% Auto Pay discount). Variable rates range from 5.87% APR to 16.45% APR (excludes 0.25% Auto Pay discount). Earnest variable interest rate student loan origination loans are based on a publicly available index, the 30-day Average Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of New York. The variable rate is based on the rate published on the 25th day, or the next business day, of the preceding calendar month, rounded to the nearest hundredth of a percent. The rate will not increase more than once per month. Although the rate will vary after you are approved, it will never exceed 36% (the maximum allowable for this loan). Please note, Earnest Private Student Loans are not available in Nevada. Our lowest rates are only available for our most credit qualified borrowers and contain our .25% auto pay discount from a checking or savings account. It is important to note that the 0.25% Auto Pay discount is not available while loan payments are deferred.
Earnest Private Student Loans are made by One American Bank, Member FDIC, or FinWise Bank, Member FDIC. One American Bank, 515 S. Minnesota Ave, Sioux Falls, SD 57104. Finwise Bank, 756 East Winchester, Suite 100, Murray, UT 84107
Earnest loans are serviced by Earnest Operations LLC, 535 Mission St., Suite 1663 San Francisco, CA 94105, NMLS #1204917, with support From Navient Solutions, LLC (NMLS #212430). One American Bank, FinWise Bank, and Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by agencies of the United States of America.
© 2024 Earnest LLC. All rights reserved.
College Ave
College Ave Student Loans products are made available through Firstrust Bank, member FDIC, First Citizens Community Bank, member FDIC, or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
*The 0.25% auto-pay interest rate reduction applies as long as the borrower or cosigner, if applicable, enrolls in auto-pay and authorizes our loan servicer to automatically deduct your monthly payments from a valid bank account via Automated Clearing House (“ACH”). The rate reduction applies for as long as the monthly payment amount is successfully deducted from the designated bank account and is suspended during periods of forbearance and certain deferments. Variable rates may increase after consummation. $5,000 is the minimum requirement to refinance. The maximum loan amount is $300,000 for those with medical, dental, pharmacy or veterinary doctorate degrees, and $150,000 for all other undergraduate or graduate degrees. Information advertised valid as of 08/25/2022. Variable interest rates may increase after consummation.
This informational repayment example uses typical loan terms for a refi borrower with a Full Principal & Interest Repayment and a 10-year repayment term, has a $40,000 loan and a 5.5% Annual Percentage Rate (“APR”): 120 monthly payments of $434.11 while in the repayment period, for a total amount of payments of $52,092.61. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.
This informational repayment example uses typical loan terms for a freshman borrower who selects the Deferred Repayment Option with a 10-year repayment term, has a $10,000 loan that is disbursed in one disbursement and a 8.35% fixed Annual Percentage Rate (“APR”): 120 monthly payments of $179.18 while in the repayment period, for a total amount of payments of $21,501.54. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.
Information advertised valid as of 5/01/2024. Variable interest rates may increase after consummation. Approved interest rate will depend on creditworthiness of the applicant(s), lowest advertised rates only available to the most creditworthy applicants and require selection of full principal and interest payments with the shortest available loan term.
College Ave Student Loans products are made available through Firstrust Bank, member FDIC, First Citizens Community Bank, member FDIC, or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
*The 0.25% auto-pay interest rate reduction applies as long as the borrower or cosigner, if applicable, enrolls in auto-pay and authorizes our loan servicer to automatically deduct your monthly payments from a valid bank account via Automated Clearing House (“ACH”). The rate reduction applies for as long as the monthly payment amount is successfully deducted from the designated bank account and is suspended during periods of forbearance and certain deferments. Variable rates may increase after consummation. $5,000 is the minimum requirement to refinance. The maximum loan amount is $300,000 for those with medical, dental, pharmacy or veterinary doctorate degrees, and $150,000 for all other undergraduate or graduate degrees. Information advertised valid as of 08/25/2022. Variable interest rates may increase after consummation.
This informational repayment example uses typical loan terms for a refi borrower with a Full Principal & Interest Repayment and a 10-year repayment term, has a $40,000 loan and a 5.5% Annual Percentage Rate (“APR”): 120 monthly payments of $434.11 while in the repayment period, for a total amount of payments of $52,092.61. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.
This informational repayment example uses typical loan terms for a freshman borrower who selects the Deferred Repayment Option with a 10-year repayment term, has a $10,000 loan that is disbursed in one disbursement and a 8.35% fixed Annual Percentage Rate (“APR”): 120 monthly payments of $179.18 while in the repayment period, for a total amount of payments of $21,501.54. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.
Information advertised valid as of 5/01/2024. Variable interest rates may increase after consummation. Approved interest rate will depend on creditworthiness of the applicant(s), lowest advertised rates only available to the most creditworthy applicants and require selection of full principal and interest payments with the shortest available loan term.
Commonly Asked Questions About Cosigning a Student Loan
What credit score does a cosigner need for a student loan?
This varies from lender to lender. As a general rule of thumb, a “good” credit score is at least 670. However, the better your credit score is, the more likely the borrower is to qualify for the student loan. Along with qualifying, the borrower will be more likely to receive a better interest rate if they have a creditworthy cosigner.
Do I need to cosign if the student already has a good credit score?
Only 8% of students get approved for private student loans without a cosigner.
If the student has a strong credit score, you may not necessarily have to cosign for the student loan. However, if the student lacks the credit history needed to originate a loan, they may not qualify for the loan on their own.
Furthermore, even if the student has a satisfactory credit score, having a cosigner who also has a good credit score and solid credit history will help the student acquire a lower interest rate and other favorable loan terms.
Does being a cosigner show up on my credit report?
Yes, being a cosigner will show up on your credit report because you are technically opening up a new credit line. Any late payments, defaults, and missed payments will also show up on your credit report. Therefore, make sure that the primary borrower is making their payments on time and in full.
>> MORE: How to remove student loans from your credit report
Can cosigning a student loan affect me buying a house?
Yes, it is possible that being a cosigner on a student loan will affect your chances of buying a house. Whether you’re looking for a new mortgage or refinancing your current mortgage, it may be difficult to be approved or qualify for competitive terms if you have cosigned a student loan. This is because while the student loan isn’t technically yours, you are still legally responsible for it. Your debt-to-income ratio is also higher with the cosigned loan than without. Accordingly, it can make you a less attractive borrower to mortgage lenders.
Can both parents cosign a student loan?
No, only one person can cosign a student loan. If you’re having trouble deciding who should cosign a student loan, use Sparrow’s free online tool to compare cosigners and make the decision. If you fill out a free form with us, you can see which private student loans you pre-qualify for across all of Sparrow’s partners. In addition to that, you can input the information of potential cosigners and see how they individually impact the loan and its terms.
>> MORE: Best parent student loans of 2023
Closing Thoughts From the Nest
In short, cosigning a student loan CAN affect your credit. It is a serious decision that can impact both you and the primary borrower’s finances, for better or for worse. Before you sign anything, do your research. Assess whether or not your finances are at an adequate state to be responsible for a private student loan.
If you want to see whether or not you will qualify as a cosigner, use Sparrow’s free online tool. Submit a form today and see what loans the student pre-qualifies for and whether or not you will benefit the loan as a cosigner.