When Private Student Loans Require a Cosigner

A young person, without established credit, may need a student loan cosigner in order to qualify for student loan financing. Using a cosigner to both secure financing and keep it inexpensive, is an available option for many students.

Short Credit History

The number one reason young people require a cosigner is because they do not have an established credit history. Even if a person has never missed a payment or ever defaulted on a loan, they may have a lower credit score. If the student has only had credit for a year or two, they will have a low score.

The low credit score can be expensive to a student because that student will receive a higher interest rate. It will cost the student thousands of dollars, over the life of the loan. Lower credit scores are given higher rates because the risk involved is higher to the lender.

No Income

Full-time students do not typically maintain incomes while in school. One of the primary ways a lender can approve you for a large loan, if you have a bad credit score, is by verifying your income. Since the typical student will not have a good score, it may be possible to verify the income of your cosigner.

You can typically provide copies of a paycheck stub and W2s. The loan company will be evaluate the income and determine whether you, or the cosigner, has sufficient funds to cover the monthly payments. 

No Guarantee of Employment

Some educational tracks are more likely to end in employment, once a degree is earned. Other course of studies, do not typically have many job options. For example, a student who is studying education, and securing a teaching certificate, will have a specific vocation to enter upon graduating. The same may be true for medical students, architects and engineers.

However, there is less employment certainty with a liberal arts or art degree. Students studying communications, philosophy or painting will find they are not attractive to lenders. Lenders want some guarantee a student will be employable at the end of college. Employment is the only way to locate a salary and begin paying off the loans. If you are not in a specific vocational field, you may need a cosigner to vouch for your application. 

No Flight-Risk Guarantees

Lenders prefer to loan to borrowers who will be in the location for a long time. This way, if the borrower defaults, the lender knows where to find him or her. Students are not usually tied to an area after graduating. They are likely to move immediately upon finding employment. Because there is little guarantee the borrower will not disappear from the lender in this case, a stable cosigner is an option. Your cosigner may own a home, have a job or have children in local schools. This is likely to satisfy the lenders fear a borrower will disappear.


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