cosign a student loan

Federal student loans may be a cost-effective option for financing college. Students can however quickly exceed the aggregate and annual borrowing limits. Here we present some information about cosign a student loan.

The College Board reported that attendance at in-state public four-year schools costs $26,590 compared to $53,980 at private universities. The fact that undergraduate first-year dependent students can only borrow $5500/year in federal Direct Subsidized or Unsubsidized loans means they will need to find other financing options for their education.

Private loans are available to help with the remainder of your child’s education expenses. However, they may not be eligible for a loan if their credit isn’t good enough. While cosigning with your child can help pay for college, it may not be the best option.

Before signing the loan application, you need to know everything about cosign a student loan on behalf of a family member.

Federal PLUS Loans vs. Private Student Loans

You have two options if you want to support your child’s college costs:

  • A federal Parent PLUS Loan can be taken
  • You can cosign for a private loan

Your child and you should always complete the Free Application for Federal Student Aid, even though you may not be eligible for financial assistance. FAFSA doesn’t only apply to student loans. It is used by the federal government, states, and colleges for evaluating applications for grants and scholarships.

Parent PLUS Loan

You have the option to get a federal Parent PLUS Loan if your child is over-subscribed or has exhausted their Direct subsidized and Unsubsidized loans. To pay for your child’s undergraduate education, you as a parent borrower can get PLUS loans up to the full cost of attendance.

However, Parent PLUS loans require borrowers to pass a credit screening. PLUS Loans have fixed interest rates which are the same regardless of credit or income. Federal PLUS Loans have some of the highest interest rates. Loans issued between July 1, 2020, & July 1, 2021, will be charged 5.3%. Additionally, PLUS Loans are subject to 4.236% disbursement fees.

You are the borrower of student loan debt with a Parent PLUS Loan. You are solely responsible to make the loan payments.

Cosign private loans

Parents PLUS loans are available to those with strong credit scores. You may be able to get a lower rate for your child and you can work with private lenders.

Cosigning a private loan can be more affordable than federal loans, as we don’t charge application, origination, or disbursement fee.

Goodbye loans offer more repayment options than federal loans. Instead of the standard 10-year repayment schedule that Parent PLUS Loans provide.

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The pros and cons of cosigning

There are many advantages to being a cosigner on a student loan for your child.

  • Your child’s chances for getting a loan increase by Private lenders often have credit and income requirements as well as minimum income or debt-to income ratios. These requirements are unlikely to be met by a college student. As a cosigner, your child can improve their chances of qualifying for a loan.
  • A cosigner can help your child get a better rate. This can allow them to be eligible for a low interest rate loan and save money in the long-term.
  • Your kid could be eligible for a bigger loan. Although private lenders can offer cosigned loans, their loan limits are usually lower. You can ensure that your child receives all the money they need for school by cosigning.
  • Your child has the potential to build credit. If you help your child get a loan, it will enable them to begin building a credit history. Lenders will report on their payments to the major credit agencies as they make them. Their credit score can rise over time as the loan is paid off.

The Cons of Cosigning

Although cosigning a loan may be a great help for your child, there are some drawbacks.

  • Your responsibility for payments: Cosigner for primary borrower. You’re responsible to make the payments if they fall behind. If your child doesn’t make their monthly payments on time, you will be responsible for them.
  • Credit score can be affected. If your child doesn’t make their payments or you don’t know, your credit rating could be negatively affected. Your account could even be put into collections.
  • A loan may affect your ability for credit. You should cosign a student loan if you are applying for other types such as a mortgage or car loan. This could increase your debt-to income (DTI). A higher DTI could make it difficult to qualify for other credit lines.
  • Some lenders do not offer cosigner exemptions. Private student loan lenders may offer cosigner exceptions. Your cosigner may be required to stay with the lender for the duration of the loan’s repayment term, or until it is fully paid off. After graduation, your student could refinance his or her student loan if they prove their creditworthiness. After approval, your student’s application will be reviewed and the cosigner will then be released from the refinanced debt.

Bottom Line

While you may be able to help your child with college expenses, you should also consider the financial implications of cosigning for a student loan application. Talk openly with your child about what the loan process entails, as well as the potential risks.

If you have cosigned for a loan but your lender has not offered a cosigner release to you, your child can ask to refinance/cosign your student loan. If your child refinances their loan as an independent applicant and is approved, they won’t need to be a cosigner. The loan will remain in their name.

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