Student Loans: Cosigner Or No Cosigner?

Borrowing money for college is very normal. Over 50% of college students today need to take out student loans in order to afford going to school. However, there are many different loans you can obtain. If you are a young student with no credit or very little credit you may need to obtain a cosigner for your loans. However, as a cosigner there are many things to think about before you sign your name on the line. Consider the following pros and cons of cosigning and obtaining a cosigner for student loans.

Who Might Need a Cosigner?

Many students are barely eighteen when the head off for college. At this young age it is doubtful that you may have built up a good credit score. Building credit and obtaining a good credit score takes time. In this case you may need a cosigner for your student loans. This may also be the case if you are an older student who has a low credit score. Many lenders require a high credit score just to be approved for a loan. If you do have credit you might want to consider a cosigner because you can get lower interest rates. Incredible savings can be seen between someone with a credit score of 700 verses someone with a credit score or 600.

Possible Savings with a Cosigner

If you can obtain a cosigner for your loan there are enormous savings you may receive. If the cosigner can lower your interest rate from 8% to 5% you could have payments that are 50% less. Over the life of the loan you can expect a great deal of savings as well. If a loan has a 8% interest rate you will save over four thousand dollars compared to a loan with an interest rate of 12%. Even if you can qualify for a loan it may be in your best interest to have someone with a higher credit cosign.

Risks of Cosigning for Student Loans

As a parent or family member of a college student it may be tempting to cosign for student loans. However, there are risks associated with cosigning. Basically you are saying that you will pay off the debt if the student defaults on the note. As a parent you may have no problem taking this risk. However, you should understand that many students find it hard to pay back student loans in a timely manner. Once the student graduates from college monthly payments will begin even if the student hasn't found employment. You should be prepared in case you have to make payments during this period.

As a student having a cosigner for your student loans can help you get the best rates and the lowest payments. However, as the cosigner you have to be willing to take full responsibility for the student loans if the student can't pay. After all the loan company will report to your credit report if something goes wrong and they have trouble collecting on the note.

Since you're actively seeking student loans then you should definitely look into these options for the best student loans available to you.