The Benefits of Having a Co-Signer For Your Student Loan

April 6, 2011 | posted by Jeff Sheely.

Private student loans are a serious financial commitment, so it’s extremely important to get the most affordable loan possible. Comparison shopping is a must, but there are other key ways to save money, such as having a co-signer on your loan. Using a co-signer will often help you qualify for more favorable private student loan options with better rates and terms.

In 2010, loans selected through the Student Loan Marketplace with a co-signer averaged an interest rate of 5.74%, compared to 8.14% for those without a co-signer. On a $10,000 / 15 year loan, that’s a savings of $21 per month in interest payments, which adds up to a total cost savings of over $3,700!

Who needs a co-signer? Everyone should look into having a co-signer, but particularly young students who have not established their credit history yet may need one on their application. Additionally, individuals with less than perfect credit may need a co-signer to secure their loan.

Who can co-sign? Anyone can apply to be a co-signer, but you typically want to ask a parent or someone close to the family who you trust. Co-signing is a serious financial commitment, so make sure your co-signer understands what is required of them.

As a benefit to responsible borrowers, many lenders will release a co-signer after 24 consecutive on-time payments. This means that you can get the benefits of having a co-signer on your loan and still release them from the obligation after a relatively short period of time. Lenders disclose this on the borrower benefits section of the loan information in the Marketplace.

The Benefits of Having a Co-Signer

There are many benefits to having a co-signer.

Reduced Interest Rates
As Finaid.org points out, it’s more cost efficient to have a co-signer even if you are eligible to receive the loan without one. The fees and interest rates are directly correlated with the higher credit score of the two individuals. A high credit score from the co-signer can mean big savings for the student, including lowered fees and a reduced interest rate. In fact, simply having a co-signer on your application can often result in a slightly better interest rate.

Reassurance
Defaulting on a student loan is not a pleasant experience. Although it is always the responsibility of the primary borrower to pay back the loan, having a second party on the loan provides some reassurance, especially if the loan is large.

Better Chance of Approval
Some students may not qualify for a private student loan on their own. Having a co-signer could make the difference in some cases, because the co-signer’s credit history and income are weighed heavily in the decision process. A credible co-signer can drastically improve the loan application and increase the changes of approval.

While there are several great benefits of having a co-signer on a student loan, it’s important to remember that both the primary borrower and co-signer will be ultimately responsible for paying back the loan. It’s a big decision, but in most cases, it’s a very beneficial one for the student.

Written by Jeff Sheely

Jeff Sheely is the Director of Marketing and Blog Editor for the Student Loan Marketplace. He can be reached at jsheely at overturecorp dot com or on Twitter at @overture_jeff.

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http://www.mycollegesandcareers.com/ My Colleges and Careers

Isn’t it damaging to your credit to get turned down for a loan application? The fact that you’re more likely to have your loan approved is a great benefit to getting a co-signer.
http://www.overturemarketplace.com/ Jeff Sheely

Thanks for the comment! It isn’t necessarily damaging to your credit score to get turned down, but applicants (and co-signers) should thoroughly review their credit reports before applying for loans, clear any inaccurate information, and note anything that might hurt their chances of getting approved.
Sviscome

my mom got turned down as a co-signer for a college loan with me but go accepted for a private loan i n her name only , my grandma mights co -sign for me what is better have my mom just get a private loan or have my grandma co sign?
http://www.overturemarketplace.com/ Jeff Sheely

Hi Sviscome,nIt depends on the rates and terms of the products. Make sure to carefully compare them (ask your financial aid office for help!) and choose the one that best fits your financial situation.nGood luck!