Student Loan Co-Signer Requirements & Obligations

Instructor: Ashley Dugger

Ashley is an attorney. She has taught and written various introductory law courses.

Many private student loans require the student to have a co-signer. This lesson explains which loans need a co-signer as well as the requirements and obligations of the co-signer.

Financing Your College

American students have accrued approximately $1.2 trillion in student loan debt. The average student will graduate college owing approximately $33,000. Will you be one of these students?

Chances are, yes. Most students find it necessary to use some sort of loan to pay for college expenses. The number of students taking out loans has increased because college expenses continue to increase.

Most students should seek grants and scholarships before taking a loan. Financial aid grants are available from the federal government and from most universities. Grants and scholarships are gifts. They do not have to be paid back unless you do not fulfill the requirements. For example, many grants require the student to maintain a certain grade point average and to be enrolled in a certain number of classes. The Teacher Education Assistance for College and Higher Education (TEACH) Grant requires students to obtain a teaching job in a low-income area upon graduation. Otherwise, the TEACH grant automatically converts into a loan.

Federal Student Loans

Once you have exhausted your grant and scholarship opportunities, you will want to explore federal student loans. Student loans, in general, must be paid back once the student graduates. Different loans have different requirements and different interest rates. However, federal loans are considered to be the most favorable option for most students because they typically have lower interest rates and do not require a co-signer, or guarantor, to share the responsibility of the loan.

You will automatically be considered for federal student loans when you submit your Free Application for Federal Student Aid (FAFSA). If you want or need any sort of financial aid, you will want to complete the FAFSA. Note that the FAFSA must be submitted each school year as federal loans and grants are awarded on a yearly basis.

There are several different types of federal student loans awarded through FAFSA data. These loans do not require a co-signer:

  • Subsidized Stafford Loans are federal student loans awarded due to the student's financial need. Because they are subsidized, the student is not responsible for paying interest on the loan while the student is still in school.
  • Unsubsidized Stafford Loans are federal student loans available to all college students who submit a FAFSA, regardless of financial need. The student is responsible for paying any loan interest accrued while the student is still in school.
  • Perkins Loans are subsidized federal student loans for students with 'exceptional financial need'. Though they are federal loans, they are awarded by the school. Not all schools offer Perkins Loans, so you will want to check availability with your university's financial aid office.
  • PLUS Loans are federal student loans awarded to parents of full-time students. They are unsubsidized and typically have a higher interest rate than the loans offered directly to students. However, PLUS Loans generally have a lower interest rate than private student loans.

Private Student Loans

Once you have exhausted your federal financial aid options, you may want to explore private student loans. These are educational loans awarded through a private bank lender, like SallieMae. Private loans are harder to obtain and usually carry a higher interest rate than federal loans.

Sometimes a student can obtain a private student loan without using a co-signer, but only if:

  • The student has an excellent credit history - generally with a credit score of 660 or above. Keep in mind that most college students have very little credit history.
  • The student has his or her own income. Generally, the student must earn at least $25,000 annually.
  • The student is a U.S. Citizen.

Otherwise, private student loans require the student to have a co-signer. The Washington Post recently estimated that 90% of all private student loans are co-signed. Co-signers are used for extra security on the loan. They help ensure the lender that the loan will be paid.

Having a co-signer with a good credit history can greatly benefit the student because it typically lowers the interest rate on the loan. The student is still responsible for making payments. The co-signer usually only comes into play if the student defaults on the loan.

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