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What is a Cosigner?

At the age of 17, I applied for student loans so that I could attend college. At the time, I didn’t really think much of it, as it was my only option to go to college.

In my mind, not going to college was not an option.

So I dutifully signed the paperwork and my parents agreed to co-sign. So, what is a cosigner?

What is a Cosigner?

A cosigner is someone that takes legal responsibility for your debt, should a default occur. Having a cosigner is necessary in certain cases, when there is a lack of credit, bad credit, or insufficient income from the borrower.

As a young 17 or 18 year old, it’s unlikely that you will have sufficient credit or income to be approved for thousands of dollars in student loans. After all, it’s a loan, and the borrowers expect to be paid back and will take every precaution to make sure that happens.

Because of this, many parents act as a cosigner for their children’s student loans. But it doesn’t have to be a parent. It could be a grandparent, friend, or spouse too. Essentially, the cosigner has enough credit worthiness and income to help you get approved for a loan — but they will be liable if the loan goes into default.

The benefits of having a cosigner include:

  • Easier to get approved for loans
  • Access to a lower interest rate
  • Someone that is essentially vouching for you to receive a loan

Be Careful

But there can be serious consequences with having a cosigner. Imagine that you graduate with $40,000 in student loans and you can’t find a job. Because you don’t have any income coming in, you can’t pay your student loans. If you don’t

take action or communicate with your lender, you will end up in default. If your loans are in default, your cosigner could be liable for your debt and the default could affect their credit score.

Not only that, but there has been some serious trouble for some private loan borrowers working with Navient (aka Sallie Mae) when a cosigner dies. In some reported cases, when a cosigner died, Navient would put the loans in auto-default, thus requiring the full remaining balance to be due immediately. Dealing with the death of a loved one is tough enough — so having to deal with this financial trouble is just salt on the wound.

Important Reminders For Cosigners

So if you are thinking of having a cosigner (or there is no other choice), then understand both of your rights and responsibilities. We have put together a great guide on how to cosign a student loan.  Also, be sure to always be in communication with your lender, if you are unable to pay. It’s better to have your debt in forbearance, rather than default, as legally the borrowers can demand the full remaining balance.

Communication is key to managing your student loan payments and making sure they don’t adversely affect your cosigner. In addition, you can even look into releasing your cosigner at a later date, under your lenders’ terms and conditions. Typically, you’d need proof of income and payment history to release a cosigner, in order to show the lender that you can sufficiently pay back the debt on your own.

In short, having a cosigner can be helpful for young students needing student loans. But it’s important to know the consequences and the repercussions after you receive the loan.

Did you get a cosigner for a student loan, or have you cosigned for one?

Category: Credit

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