More than half of students borrow money to pay for their undergraduate degree, and many of them face a common problem: As young adults, they haven’t had the time or means to build up a credit history or stable income. Without those things, student borrowers often have trouble qualifying for private student loans without a co-signer.
However, not all forms of student debt require a co-signer, and it’s possible to borrow money for college on your own. Here’s when you might need a co-signer for your student loans and how you can include them on your loan application, if so.
Do You Need a Student Loan Co-signer? 4 Factors to Consider
It’s possible to qualify for a student loan on your own, but some students may find better deals if they apply for a loan with co-signer. Here’s what to consider before applying:
1. Type of Student Loan
The kind of loan you get directly impacts your need for a co-signer. Most federal student loans, including direct subsidized, unsubsidized and consolidation loans, don’t require a credit check or co-signer. That means most student applicants can qualify for these loans on their own.
Only one type of federal debt requires a credit check: direct PLUS loans for parents or grad students. If you’re ineligible for PLUS loans due to negative credit marks, you may be approved after adding a co-signer (or “endorser,” as the Department of Education calls it).
Private student loans, which are offered by private institutions like banks, credit unions and online lenders, typically do require a credit check. If you don’t have good to excellent credit (or any credit), you’ll likely need a co-signer to help you qualify.
2. Credit Score
Your credit score doesn’t impact your approval for most federal student loans. Plus, everyone who is eligible for federal student loans receives the same standardized interest rates.
But if you apply for private student loans, your credit score will be one of the most important factors in determining your eligibility. As a general rule, most lenders require minimum scores in the mid- to high-600s to be approved. The higher your credit score, the more likely you are to get approved for the loan at the lowest interest rate available.
3. Credit History
Your credit score is based on the content and length of your credit history. If you have a short credit history or poor credit, that’s a red flag to private student lenders. In this case, you may need a co-signer with a longer credit history that shows good or excellent credit to get a private student loan.
4. Job Status and Income
When taking out a private student loan, you usually need to show you have the funds to pay it back. Applicants who work full time and earn steady paychecks likely won’t have trouble proving this.
But if you work part time, are unemployed or otherwise have inconsistent income, you might need a co-signer to help you qualify for a private student loan.
How to Add a Co-signer to Your Student Loan
If you’re applying for federal student loans, you must submit the Free Application for Federal Student Aid (FAFSA). After your FAFSA is reviewed, your award letter will note what federal aid you qualify for, including grants, scholarships, work-study programs and student loans. Most types of federal debt don’t require (or allow) co-signers, so you can simply accept the aid you need and complete the final paperwork.
To apply for a federal PLUS loan, you’ll have to submit an additional application. If you have adverse credit and are not approved for a PLUS loan, you can add an endorser (aka a co-signer) to your online application.
If you want to take out private student loans, you may need a co-signer to qualify or get the lowest interest rates offered. An ideal co-signer is someone you trust who has a strong history of responsible credit use and a stable income. This can be a parent, grandparent or someone else that’s 18 years of age or older who agrees to share responsibility for the loan.
Keep in mind that this means your co-signer will be on the hook if you can’t make your payments. Plus, missing payments will affect not only your credit, but also your co-signer’s. Because of these risks, it’s important to establish some baseline rules for you and your co-signer before you apply. Consider:
- Application requirements. Make sure your co-signer meets the lender’s eligibility requirements before you complete an application. If your lender has a prequalification option, that can help determine if they’re a good match for a private student loan.
- Repayment terms. For private student loans, repayment often starts six months after you graduate or drop below half-time enrollment. But not all private student lenders offer this grace period. If you have to start repaying your loan while in school, make a plan with your co-signer about how to manage payments.
- A backup plan. Even with the best intentions, there’s a chance you might not be able to afford your student loan. Discuss this possibility with your co-signer ahead of time and make a backup plan just in case. Outline what both parties will do if you lose your job, have an unexpected financial emergency or otherwise can’t make your student loan payment.
When you find the right co-signer, you can complete an application together and input the information of both parties. You’ll both receive terms to agree to and alerts about your account, including approval and disbursement of your student loan.
Consider Lenders That Offer Co-signer Release
Student loans with a co-signer release option are available from many private lenders, but not all. Co-signer release allows you to remove your co-signer from the loan once certain conditions are met. For example, you’ll likely need strong enough credit and income to qualify on your own in addition to making a year or more of on-time payments before you can remove a co-signer.
Your co-signer might be more comfortable backing your loan if they can be removed at some point during repayment. If this is a priority, be sure to check that your desired lender offers co-signer release before submitting an application.
If you borrow a loan without co-signer release, you can only remove a co-signer by refinancing your debt into an entirely new loan.
Bottom Line
Not all student loans require co-signers. Since most federal student loans are free from co-signer requirements, that’s likely your best option to borrow money for school. Federal loans also come with other benefits and protections that often make them a better option than private student loans.
If you need to borrow more than what the Department of Education can offer you, explore private student loans. But remember that without a decent credit history and stable income, you might need a co-signer to help you qualify.
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