The Parent’s Guide to Cosigning a Private Student Loan

For many parents, cosigning a private student loan for their child may be necessary to cover college expenses.

By adding their name to the student loan, the parent is giving their student access to credit that they may not otherwise qualify for. What parents may not realize, however, is that their own credit standing is on the line. Cosigners are equally responsible for repaying the student loan.

Here are some cosigning considerations parents and students should discuss before signing on the dotted line.

How Do Private Student Loans Fit in Your Overall Tuition Plan?

Private student loans can bridge the gap between financial aid and what your family can afford to cover tuition costs. But it’s important to do your research on how private student loans work to make sure they’re the right fit for your financial situation. You’ll also want to compare a few different private student loan options. Keep in mind that no matter which lender you choose, your child will likely need a cosigner.

Who Is Responsible for Paying the Bill?

Both the primary borrower and the cosigner are equally responsible for repaying the student loan. Even if there is an agreement that the student will pay all the monthly bill, the lender will expect the cosigner to pay if that obligation is not being met. Parents and students should discuss the responsibility of repaying the loan, the consequences of missing a payment, and how you and your child will handle the loan if your child is unable to make payments. Having a plan in place can help you be prepared before problems arise.

How Involved Is the Cosigner?

The cosigner has the same access to loan information as the primary borrower, so you can check in and keep an eye on account activity. Even if the student is responsible for making payments, it can be a good idea for cosigners to regularly look at statements or sign up for account alerts. Establishing clear communication and discussing the terms before a loan is taken out will help both parties understand the agreement.

How Does Cosigning Affect Credit?

Student loans will appear on the credit report of the student and the cosigner. This can be an opportunity for a student to build their credit history. On-time payments can help improve (or build) a credit score for a student who may not yet have much credit history. Take note: Missed payments or late payments will not only affect the credit of the student, but they will affect your credit score as a cosigner, too. So it’s important to keep your student loan in good standing no matter who pays the bill.

What If We Aren’t in a Position to Cosign?

Not all parents are approved as cosigners. Before you apply to be a cosigner on a loan, take stock of your financial situation. In some cases, it may make sense to ask grandparents or other trusted family members or friends to consider cosigning. But it is a big financial obligation, and sometimes, if a parent has experienced bankruptcy or financial hardship, parents may not be an option to cosign. If your family isn’t able to cosign, it may be worth talking to the financial aid office and apprising them of your family’s current financial situation to see if they have any solutions or suggestions. You can also continue to look for scholarships to try to cover any costs that aren’t covered by your current financial aid package.

Original Article: Dawn Papandrea, College Covered https://www.collegecovered.com/pay/the-ins-and-outs-of-cosigning-what-parents-need-to-know/