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During your student loan application, you might be asked to provide a cosigner. What is a cosigner? What are the benefits of having a cosigner?
A cosigner is a parent, grandparent, guardian or other adult who is creditworthy and willing to assume legal responsibility for the loan liabilities along with you. In most cases the cosigner must be a U.S. citizen or permanent resident. Cosigners may have to pay up to the full amount of the debt if the borrower does not pay. In short, a cosigner commits to paying the balance in the event you, for whatever reason, cannot.
Getting a parent or guardian to cosign a student loan may sound like a big ask for borrowers. However, there are two key benefits of having a cosigner that may outweigh the risk.
1. A cosigner can potentially lower your interest rate. Many borrowers will need a cosigner to be approved for private student loans and/or student loan refinance. However, even if you’re approved for a loan based on your own credit profile, you may be able to substantially lower your interest rate with a cosigner. This could mean thousands in savings over the course of the loan. For example, even if your cosigner lowers your rate by only 1% you could save upwards of $10,000 over the life of your loan. (On a 15-year, $100,000 loan, the difference in the total interest you pay on a 6% rate versus a 7% rate is about $10,000.)
2. A cosigner doesn’t need to be committed to the loan for the entire term length. Many of the companies that consolidate student loans (for reference, private student loan consolidation, often referred to as refinancing, pertains to combining multiple student loans together under a new interest rate and repayment term) offer borrowers the ability to release their cosigner. Meaning, if you make consecutive, on-time payments for a few years, then you can request that your cosigner be released. Cosigner release benefits are different depending on the lender. Just know that in most cases it is possible to release a cosigner. Even if a lender doesn’t advertise cosigner release, you may request the consideration.
Just remember, any credit worthy individual can act as a cosigner on your student loan debt. It can be a parent, but cosigner criteria isn’t limiting to direct family either.
Author: Dave Rathmanner
As the VP of Content at LendEDU, Dave regularly plans and writes content to help consumers with their personal finances. Dave’s work has been featured in the Chicago Tribune, Bloomberg, CNBC, US News, Yahoo Finance, NPR, and more.