Do I Need a Co-Signer for a Student Loan?

Written by: Kristyn Pilgrim
Updated: 7/21/20

Student loans are a fact of life for many people who want a college education: There is nearly $1.6 trillion in student loan debt looming over the heads of 45 million American graduates. When you first start your college career, there is no telling what kind of salary you will earn immediately after graduation, when student loan repayment plans will spring into action. You also may not have much of a credit history at this point in your life. For these reasons, in some cases, a lender will require a financially responsible co-signer, such as a parent or guardian, to sign for the loan alongside you.

What Is a Co-Signer?

A co-signer is someone with a strong credit history who agrees to guarantee the payment of a given loan should the student be unable or unwilling to do so. If you have a co-signer for your loan, you may be eligible to borrow at a lower interest rate, depending on the strength of your co-signer’s credit record.

Here are some key facts you should know about having a co-signer:

  • A co-signer is just as responsible for paying off the loan as you, the student borrowing the money: They are legally obligated to make sure that the loan is paid back following the chosen repayment plan. This means that if you cannot make your payments, the co-signer is responsible for making sure the payments are completed on time.
  • Payments that are made late, or not made at all, will affect both parties’ credit history (the co-signer and the principal borrower). 
  • If you are applying for a private loan, lenders may decide to hire a collection agency if you or your co-signer have not made your payments. The private lender or debt collector can also sue the co-signer if they have not made the necessary payments.
  • If you have been able to make your payments on time and have obtained a sufficient score during a credit check, some student loan servicers will allow you to release your co-signer from the loan. If you know you have been timely with your payments, have established good credit, and now wish to release your co-signer, this is something you might want to look into with your lender. Many servicers do not tell their borrowers when they become eligible for this option.

When you apply for your student loan, you won’t necessarily be able to predict your financial position after graduation and whether you will be able to pay back your student loans. If this is the case, having a co-signer can be beneficial for you. Having a co-signer is sometimes a requirement to even qualify for a loan in the first place – however, not every student has someone in their life who can co-sign their loan.

If you are not in a position to have someone co-sign your loan, there is no need to worry. There are many ways for you to obtain student loans without a co-signer.

Loans That Do Not Require a Co-Signer

Co-signers are not required if you are applying for a federal Direct Loan, also known as a Stafford Loan, from the U.S. Department of Education. This is because your eligibility for these loans is based on financial need. When the federal government approves your loan application, they have already decided that they are willing to take on the credit risk, even without the reassurance that a financially responsible parent or guardian will be there to pay off the loan if you can’t. 

Whether you are applying for a subsidized and unsubsidized loan, a co-signer will not be necessary for either. Just be sure you know the difference: 

  • A subsidized loan means that the government will pay the loan interest for you while you are still in school or during a period when you have deferred the loan.
  • An unsubsidized loan means that the interest starts to accrue as soon as the loan is taken out, so if possible, it’s wise to begin paying it off immediately.

While a co-signer is not required for these federal Direct Loans, you will need to fill out the required application for the loan with the help of a parent or guardian. The Free Application for Federal Student Aid (FAFSA) form is what the government uses to determine how much they are willing to lend you. 

Another option that may not require a co-signer is the PLUS Loan. This type of loan is also issued by the U.S. Department of Education. It is usually granted to financially established parents, but it is also available for students in graduate and professional study programs. Although a co-signer is usually not required for students who apply for a PLUS Loan, if you have experienced a significant credit event – such as owing a substantial debt, bankruptcy, or foreclosure – you may be required to have one.

When You Need a Co-Signer 

If the loans you’ve received from the federal government are not enough to cover all of your educational expenses, you may want to consider applying for a private student loan. Unlike federal Direct Loans, though, private student loans usually require a co-signer if you have a less-than-desirable credit score or no credit history. These loans are funded by private financial institutions or lenders that can define their own standards and eligibility requirements. That means getting approved for these private student loans may be more difficult, and even if you do get approved, they often come with higher interest rates without a decent credit score. 

This is the type of situation where having someone to co-sign your student loan will be beneficial, as it can greatly increase your chances of being approved, getting a lower interest rate, and obtaining the resources you need that your federal loans do not cover.

Before You Recruit a Co-Signer …

Make sure you have done as much research as possible about your loan options. As mentioned, most federal loans do not require a co-signer, are not granted or declined based on your credit, and are generally less risky because they come with payment protection options if you are experiencing financial trouble. 

With federal student loans, you can defer your payments or make smaller payments over a longer period if that is a more feasible way for you to make your payments on time. Another benefit of federal loans is that the payment period doesn’t start until six months after graduation (this is commonly referred to as the “grace period”), while many private student loans require payments to be made either while you are still in school or immediately after graduation. 

Federal loans for students are subject to caps, but that doesn’t mean you must turn to private loans right away. If you reach your limit, your parents can apply for a PLUS Loan to get you some extra leeway. If that is not an option for your family, there are other types of financial aid you can explore. Aside from federal loans, you can apply for things like scholarships, grants, and work-study programs.

Your education is important for your future, and so are the financial decisions you and your family make as you get ready for college. Whether you are applying for federal Direct Loans, PLUS Loans, or any kind of private loan, College Finance is here to provide the necessary insight to help you make informed decisions about financing your college education. Our website has guides for everything related to student loan financing, from creating a budget to paying off loans after graduation, so you can lean on us every step of the way.