Think of your cosigner as a character witness. This person promises that you’re a good credit risk, and to prove it, they agree to make your payments if you can’t handle it yourself.
Many loan companies offer cosigner release programs. In theory, they allow you to cut ties with your cosigner when you prove you’re financially stable. But researchers say about 90% of people who apply for cosigner release are denied.
No-cosigner loans avoid this.
If you have qualifying credit, you can sign up for a loan with the power of your word. You won’t need anyone’s help, and you won’t have to go through the hassle of changing your terms in years to come.
Why Are Cosigners Needed?
While you may have the best intentions of paying back your loans, banks deal with broken promises every day. Sometimes your loan looks a little too risky without someone to vouch for you.
Before you can take out any loan, from credit cards to mortgages to student loans, officials must assess your credit. They look over:
- Length. How long have you been a good customer? How much data about your past is available?
- Payments. How often do you pay your bills on time? Do you ever skip them?
- Judgments. Have you left a creditor stuck with an unpaid balance?
- Earnings. How much do you make? Is it enough to cover the debts you already have?
As a college student just starting out on your independent life, your credit history is probably slim. You haven’t paid back big credit card bills. You don’t have your dream job (and salary) quite yet. You haven’t made many payments either late or on time.
By using a cosigner, the bank is letting you borrow another person’s credit history. Choose the right person, and you could get a low interest rate. The bank knows your cosigner will pay the bills if you can’t, and the risk of losing all the money is low. With the right cosigner, you could benefit.
But if you don’t know very many people, or those you do know have a bad credit record, it could be hard for you to get a loan with their help. And being a cosigner comes with risks that could keep your family and friends from helping you. When that happens, you’ll need a loan with no cosigner.
5 No-Cosigner Student Loans to Consider
Few private companies offer student loans without a cosigner. Most encourage students to reach out to friends, family members, and mentors and ask for help when it’s time to sign loan documents. But the federal government, along with some private lenders, are willing to help students without a cosigner.
- U.S. Department of Education: Student and Parent Loans from the government never come with a credit check, and they are attached to forbearance, forgiveness, or cancellation options if you’re in trouble and can’t pay back the loan balance.
If you haven’t considered your federal student loan options, you should start there before looking into any private loan, with or without a cosigner.
- FundingU: This company is dedicated to student loans and does not require a co-signer. Applicants are encouraged to create an academic progress plan when applying and you don’t need a good credit score to get a loan. Borrowers are judged by their GPA and school graduation rate eligibility requirements.
- Sixup: This company was founded by people passionate about independent students. No cosigners are required for student loans, and an extensive credit history isn’t needed either.
You’ll pay up to 9.89% fixed interest — that’s higher than other private banks offer. You have just two payment plans available, which is fewer than other banks offer, and there seems to be no forbearance or forgiveness options.
The company’s website is filled with sparkling reviews about customer service and process. If you desperately need a no-cosigner student loan and you know you can’t qualify with a traditional bank, this could be a good option.
- Ascent: This company also focuses on students who can’t get a loan through traditional cosigner methods. You can borrow as little as $2,000 or as much as $200,000 with good credit. The company says you could get less than you ask for if officials deem your credit risk too high.
You can pay the balance back in 10 years or 20. Expect to pay interest rates of 13% or higher, which is high compared to other banks.
The company has only a few reviews available on its website, but all suggest that this was the only private loan option available to them, and the students were happy to find it.
- Earnest: This company also encourages students to use a cosigner to get the best terms on a private student loan. But students with a good credit history can qualify for their loan products. The company offers an online eligibility tool. If you have an estimated credit score, you can find out quickly whether this is a program that will work for you.
The company’s fixed interest rates start at 3.35%, but the upper limit isn’t listed. You have four repayment options, including plans that allow you to pay as little as $25 while you’re in school.
The company offers multiple reviews on its website, and it includes negative write-ups. That transparency suggests the company provides satisfactory service for a reputable product. They have very little to hide.
4 Things to Consider Before You Cosign
Students looking for a student loans have a lot to consider, but the adults who are asked to be a cosigner also have a lot to think about. While you want to help these future scholars succeed, you may not be sure if it’s the right decision.
These are four things to consider before you decide whether or not to sign a loan.
- Prepare to make the loan payment. Students often have exceptional intentions. They want to pay back what they borrow. But the job market can be tough, living expenses can be high, and promises get broken. If your student doesn’t pay and you’re the cosigner, expect the bank to come for your money.
- You can get a cosigner release, but it’s difficult. Every bank has different policies that can remove your name from a loan. Many of them are tedious. Reporters say, for example, that borrowers have 10 data points to provide to Sallie Mae to ensure cosigner release. Small slip-ups, such as signing up for a graduated repayment period, can disqualify you.
- Your credit takes a hit. If you’re hoping to buy a new car, take out a mortgage on a new house, or borrow for your dream vacation, think again. As experts point out, cosigning a loan makes it your responsibility per your credit report. Future borrowers will count this money against you. When they do, they could prevent you from borrowing more.
- Your relationship may suffer. About 35% of parents who cosign for a loan regret it later, researchers say. They were frustrated when asked to pay back a balance, and upset that the loans negatively impacted their credit score.
If you have an open and honest conversation with your student, and you both agree that a cosigner is the best way to get a loan, signing can help tremendously. But be sure to explore your other options first.
That could mean heading back to the drawing board and considering federal student loans. These loans never come with a credit check, and no cosigners are required.
If your student needs money, this is a guaranteed loan that is backed by the power of the federal government. It could be the best way to let a student stand alone and be responsible for the ensuing debt.