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Student Loan Cosigning
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Article on Student Loan Cosigning
Student Loan Co-Signing is where a person, other than the borrower, guarantees to repay the loan in the event of the student defaulting. This means that the co-signer is pursued for collection of the loan to fulfil the borrower’s obligations.
Do all Student Loans Require a Co-Signer?
A number of federal student loans do not require a co-signer, whereas private student loans generally do. As most students do not have much of a credit history it can be difficult to obtain a loan without someone acting as guarantor. Usually this is a parent of the student. The parent, or other guarantor, usually needs to have a good credit history to act as a co-signer for their child’s loan.
The co-signer can be someone other than the borrower’s parent, and it is a good idea to find someone who has good credit so as to keep interest rates down on the loan they are co-signing for. Obviously, borrower and co-signer must have mutual trust in each other.
The Co-Signer’s Responsibilities
When co-signing for a student loan the guarantor accepts that they must repay the loan in the event of the borrower defaulting. The co-signer must divulge information about their income and assets and is essentially treated as if they were the one taking out the loan. Student Loan Co-Signing is not something to enter into lightly as defaulting on the loan as the co-signer can lead to bad credit despite the co-signer not being the primary borrower.
Many co-signers worry, quite rightly, about the extent of their liability. If the student becomes irresponsible and ceases to make payment on the loan then the co-signer is responsible. This is the same in most cases if the student faces financial hardship and can no longer make payments. In the event of the student’s death or terminal illness most federal student loans are waived rather than recovering the amount from the co-signer.
Loans without a Co-Signer
Private student loans with no co-signer can be difficult to get, especially if you do not have a credit history, or have a bad credit history. However, there are some loans that do not require Student Loan Co-Signing. Federal student loans such as the Stafford Loan and Perkin’s Loan do not require a co-signer. These loans can contribute to tuition costs and living expenses but are unlikely to meet the full financial needs of a student as they are capped.
For Students with Bad Credit
If a student has bad credit or no credit and cannot provide a co-signer for a loan then the Stafford Loan is the best chance of achieving financial aid. These loans do not require a credit check or co-signer. Perkin’s Loans also do not require credit history or co-signers, but the amount of loan is limited as with the Stafford Loan. Some private companies offer loans to those with bad credit, but generally these should be a last resort as the interest rates will be very high.
Co-signing a student loan should be carefully considered and the student and co-signer should be aware of other finance options.
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