Should You Cosign a Student Loan? Pros and Cons

Private student loans are a way students pay for college when federal student loans, grants, scholarships, and savings aren’t enough to cover the costs.

Unlike federal loans, most private lenders base eligibility on an applicant’s credit score and annual income. Many college students can’t meet these requirements alone. Not only might the student not have a steady job or income, but they may not have an established credit history or credit score.  

For these reasons, students might ask a cosigner with a good credit score and a steady income to improve their chances of approval. If you’re considering cosigning a private student loan, evaluate your trust in the borrower and know the potential risks.

What does it mean to cosign a student loan?

A cosigner is a person on a loan application in addition to the primary borrower who shares responsibility for repayment. Aside from new private student loans, you can also add cosigners to private student loan refinancing applications.

Who can be a cosigner?

Usually, a cosigner is a parent, grandparent, relative, or spouse with a stronger or more established credit history than the student. As a cosigner, you agree to repay the borrower’s debt if they fail to do so. For this reason, cosigners often have a close relationship with the borrower.

When the primary borrower doesn’t have a good credit score or hasn’t established a foundation of on-time payments or responsible credit use, they may need a creditworthy cosigner to be approved for a private loan.

By agreeing to be a cosigner, you’re telling the lender that you accept full responsibility for the loan. With this understanding, the lender is making the loan based on your creditworthiness instead of the borrower’s and is counting on you to ensure the loan is repaid as agreed. 

Generally, parents should cosign a child’s student loans rather than take loans out themselves because this will help the student build credit and allow them to have some “skin in the game.”

Jim McCarthy

CFP®

How does a cosigner affect the loan application process?

Adding a cosigner to a private student loan application gives the lender more peace of mind in approving a borrower for a loan. Someone with strong credit is considered a low-risk borrower, and an individual with a limited credit history is considered high-risk. 

Rather than relying on the primary borrower’s credit score and financial condition to approve the loan, the lender instead relies on the cosigner’s information. As such, the loan application will require the cosigner to provide the same information they would provide as the borrower.

As the cosigner, you can expect to provide the lender with personally identifiable information (e.g., name, Social Security number, address) and financial information (e.g., tax returns, pay stubs, bank statements). This information will be used by the lender to make the credit decision. 

How does cosigning a student loan affect me?

If the primary borrower fails to pay the loan as agreed, the cosigner is responsible for paying. A cosigner is equally responsible to the borrower for repaying the loan. The loan will appear on both the borrower’s and the cosigner’s credit reports and affect both parties’ credit scores. 

The cosigner can be legally required to repay the loan at any time instead of the borrower since they’re equally responsible for paying. However, this often happens when the borrower’s payments are late. The lender may hire a collection agency to collect from the cosigner or sue them for repayment.

The majority of private student loans are cosigned. Federal student loans don’t require cosigners—and most don’t require a credit check—because approval is based on the school the student attends and other non-financial factors.

Notably, Direct PLUS loans require a credit check. If the borrower has an adverse credit history, an endorser with good credit can be added to the loan. Like a cosigner, the endorser agrees to repay the loan if the borrower becomes delinquent or defaults.  

Cosigning a student loan: Pros and cons

As a cosigner, you’re legally responsible for the borrower’s student loan, you may be required to repay it if the borrower fails to do so, and the borrower’s payment history will affect your credit. Given these implications, weighing the pros and cons of cosigning a student loan is essential.

Pros

• Help your loved one build credit

  Since you’re taking on financial risk when you agree to be a cosigner, you’ll typically only do this for a loved one. While you won’t receive a financial benefit as a cosigner, it can be a great way to help your loved one gain financial independence.

• Reduce the borrower’s educational costs

  While you’re not reaping financial gains as a cosigner, your loved one may be able to get a lower interest rate by adding you to the loan. This means they’ll pay less in total interest costs on the loan, which reduces the amount they’ll pay for college.

• Allow someone who couldn’t otherwise afford school to go to college

  By agreeing to serve as a cosigner, you’re helping someone get the funding they need to receive an education (e.g., international students). Helping someone better themselves could give you a personal sense of satisfaction. 

Cons

• Cosigner is at financial risk

  If the borrower doesn’t make the payments or is late, you may be left to pick up the pieces. Not only could your credit be damaged, but the loan is equally yours to repay (even though you didn’t receive any loan proceeds).

• Cosigner may not be able to get new credit

  Since this loan will appear on your credit, lenders will factor it into your debt-to-income ratio if you apply for a loan. Depending on the loan size and repayment terms, it may negatively affect your ability to get approved.

• Not all lenders offer cosigner release

  Some lenders offer a cosigner release, which allows borrowers to remove their cosigners from the agreements after a certain amount of on-time monthly payments are made. If this isn’t an option, you may need to stay on the loan until it’s fully repaid. 

More about cosigner release

Without a release, the cosigner remains tied to the loan unless the borrower refinances it with a different loan solely in their name. To compare lenders that allow student loan refinancing, check out our guide to the best student loan refinance lenders.

If you’re searching for a new student loan from a lender that offers cosigner release, here are lenders and the requirements that need to be met before a cosigner can be released:

To ensure a successful cosigner release, ensure the student is prepared financially to maintain the loan payments going forward.

Jim McCarthy

CFP®

Consider the risks of cosigning a student loan: Should you agree?

Before agreeing to cosign a private student loan, assess your financial stability. Ensure you have a reliable income, a good credit score, and the ability to take on additional debt if necessary. If you are uncertain about your financial standing, cosigning may not be advisable. 

Also, recognize the potential risks associated with cosigning, such as the impact on your credit score and financial standing if the primary borrower fails to make timely payments. Consider how a defaulted loan could strain your relationship with the borrower and affect your financial health. 

If …	Should you consider cosigning?	Why?
You have a stable income and excellent credit	✅	Cosigning the loan shouldn’t strain your financial health since you’re in good condition.
You trust the primary borrower to make on-time payments on their loan	✅	If the primary borrower demonstrates financial responsibility, cosigning may be prudent.
You are unsure about your financial stability	❌	Cosigning may risk your financial health if you are not confident in handling potential loan obligations.
The borrower has alternative financing options available	❌	If there are other viable funding sources, cosigning may not be necessary, protecting you from potential financial strain.
You are concerned about potential damage to your credit	❌	If the prospect of a negative impact on your credit score is a significant concern, reconsider cosigning, as defaults could affect your financial standing.
You plan to make a big purchase (such as a house) in the near future	❌	Cosigning may impact your ability to secure favorable terms on a big purchase, such as a house, soon.
You have poor or fair credit (FICO score below 670)	❌	A low credit score raises the risk for the lender, so it may not add any benefits for the primary borrower, and you’ll still be taking on responsibility for the borrower’s loan.

Trust is a critical factor in cosigning a loan. If you have confidence in the primary borrower’s responsibility and commitment to making on-time payments, cosigning may be a reasonable choice. However, if there are doubts about their ability to repay, you may be best to avoid cosigning.

If you are cosigning a loan, consider a term life insurance policy to pay off the loan if you were to unexpectedly pass away.

Jim McCarthy

CFP®

What to expect if you agree to cosign a student loan

If you decide to cosign a student loan, it’s essential to understand the responsibilities and steps involved. Here’s a brief overview of what you can expect if you agree to cosign a student loan, including what tasks are typically assigned to the cosigner versus the primary borrower:

1. Completing the application: The primary borrower usually initiates the loan application process, providing their personal information, school details, and loan amount needs. As a cosigner, you must collaborate with the borrower to share your personal and financial information with the lender. 
2. Providing financial information: The loan approval, rates, and terms are based on your creditworthiness, so you’ll need to share details about your assets, income, and employment status with the lender. The borrower will often give this information to the lender for you.
3. Understanding the repayment terms: Both parties should carefully review and understand the loan terms, including the interest rate and repayment requirements. As a cosigner, you should know your obligation to step in if the borrower doesn’t repay the loan as agreed.
4. Monitoring the loan: Even though the primary borrower is responsible for timely payments, cosigners should actively monitor the loan status. This includes staying informed about changes in the borrower’s financial situation and being prepared to step in if necessary.
5. Communication with the lender: You can expect the lender to communicate directly with the primary borrower regarding the loan. However, cosigners should ensure they are included in relevant communications to stay informed about the loan’s status and promptly address concerns.

By understanding their responsibilities, cosigners can make informed decisions and navigate the student loan process effectively. Open communication between the cosigner and primary borrower is essential to ensure both parties know their roles and obligations throughout the loan’s life.

Alternatives to cosigners

As a cosigner, carefully evaluate whether taking on this responsibility aligns with your financial situation, goals, and trust in the borrower. Encourage the borrower to explore alternatives, such as federal student loans, state-based programs, scholarships, grants, and work-study programs.

Some private lenders don’t require a cosigner and have less stringent eligibility requirements. To see lenders where this might be an option, check out our guide to student loans without a cosigner.

Federal student loans

A cosigner is not a requirement for all student loans. Federal student loans do not require full underwriting. There’s usually no credit check, and borrowers can get approved without income.

Instead of undergoing a credit check like with a private student loan, students complete the Free Application for Federal Student Aid, or FAFSA, to see what they are eligible for in terms of federal student loans. 

Direct Loans are an option for undergraduate students, and Direct Loans and Grad PLUS Loans are options for graduate students.

State-based programs

The borrower may also look to state-based student loan programs that don’t require a credit check. These programs vary based on where the student lives and their level of study, but they may provide options without needing a cosigner.

Also, most states offer at least one state-based financial aid program for their residents, such as scholarships or grants. Even if the borrower isn’t sure if they’ll qualify, it’s worth checking out before agreeing to cosign on their loan. 

Look for alternative forms of financial aid 

Grants, scholarships, and work-study programs are not loans and do not require repayment or a credit check. These can be valuable additions to the borrower’s overall financial aid package. 

Encourage the primary borrower to look into these alternatives before cosigning. In most cases, the borrower isn’t required to repay these funds. As such, these types of financial aid should always be considered before the borrower takes on debt or you agree to help them do so.