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Do You Need a Student Loan Cosigner?

The answer depends on the type of loan you qualify to get and a host of other financial factors. Here's the basic information you'll need to know.

Image credit: Getty Images.

Student loan application on a desk with a pencil and calculator
Student loan application on a desk with a pencil and calculator

Image source: Getty Images

Unfortunately, student loans have become a fact of life for those seeking to go to college. An estimated 44 million borrowers owe money on student loans, with a total of more than $1.5 trillion in outstanding debt. That's an especially difficult burden for young graduates to bear once they get out of school, and many borrowers find it tough to meet their financial obligations to repay their student loans while still having money left over to cover basic living expenses.

Because very few students have any significant credit history when they first borrow money, it's not unusual for lenders to want to have parents, grandparents, or some other financially responsible person act as cosigners for a student loan. That way, the lender can always rely on the cosigner to come up with payments if the student proves unable or unwilling to do so. However, not all students have someone who can cosign a student loan on their behalf, and that raises the question of whether you really need a student loan cosigner to get the college financing you need. In some cases, there are ways to get student loans without a cosigner. Even in situations in which the lender typically prefers to have someone cosign on student loans, there are still some avenues by which you can agree to terms that will get you your loan money.

When you absolutely do not need a cosigner

For most student loan borrowers, the key factor in determining whether you need a cosigner is what type of student loan you have. In particular, federal Direct student loans from the U.S. Department of Education don't require cosigners. Because these loans, also sometimes called Stafford loans, are largely need-based, the federal government already knows from determining a student's eligibility that it's willing to take on the credit risk of a student borrower without the assurance of having a cosigner to bulk up the student's financial obligations.

That's not to say that you won't need to have parents help out with providing some key information, though. To get a Direct loan, students have to fill out the required Free Application for Federal Student Aid form. The information on the FAFSA form helps the government determine exactly how much it's willing to lend directly to a student. Regardless of whether the Direct loan is subsidized or unsubsidized, a cosigner will be unnecessary.

When you usually won't need a cosigner

Another Department of Education-sponsored loan, known as the PLUS loan, occupies a middle ground in the cosigner discussion. PLUS loans are most often made to parents, who usually have extensive credit histories of their own and therefore don't need cosigners. However, some PLUS loans are also available to graduate and professional students.

If a borrower has an adverse credit history, however, the government can require a PLUS loan borrower to find what it calls an endorser on the loan. Endorsers take on the same responsibilities that cosigners do to repay debt on the student borrower's behalf in the event of default. Unless you've had serious credit events -- including having a substantial amount of outstanding debt that's 90 days or more delinquent, or having gone through bankruptcy or foreclosure -- PLUS loans will typically be available without a cosigner even to young borrowers.

When you're most likely to need a cosigner

If federal loans don't provide enough money to cover all your expenses, then the odds of needing a cosigner go way up. Because private student loan lenders generally have a lot of latitude to use their own underwriting standards in extending private student loans, they're more likely to have cosigner requirements for students who can't make the grade on their own.

Of course, private lenders also want to make a profit, so they're not completely closed to the idea of lending to student borrowers even if they haven't had a chance to build up an extensive positive credit history. In particular, for students who have at least minimal credit experience, a private lender can consider loans without having a cosigner to back up the student financially.

The tradeoff, though, is that you can expect terms on non-cosigner student loans to be less favorable. Higher interest rates are the most common consequence of not having a cosigner, but lenders can also require different repayment periods as well. Even if the private lender doesn't require you to have a cosigner, therefore, you might be able to save money if you can find one. Saving just a percentage point or two on your loan rate could save you thousands over the course of your loan, so it's worth the effort even if it's a bit uncomfortable.

Limiting a cosigner's risk

Lastly, one thing that many student loan borrowers never consider is the option of having a cosigner be responsible for covering the loan for only a limited period of time. In some cases, the financial institution giving you the loan can consider releasing your cosigner after you've made one to three years' worth of student loan payments -- even if you still have several years more before your loan will be repaid in full.

By that time, your lender will have had an opportunity to see you demonstrate your ability to make student loan payments responsibly and on time. That'll make the lender more willing to trust you going forward -- especially if by then your own financial situation has improved significantly.

Be smart about cosigners

Ideally you won't have to get a cosigner to get the student loans you need, as the most favorable student loans available directly from the federal government typically don't require you to do so. However, for many borrowers, those high-quality loans simply don't provide enough financing to meet your needs. In that case, getting a cosigner to go in with you on a student loan might be the only way you can get the money you need to make your college dreams a reality.

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