Student Loan Co-signers

Many students who take out private student loans loans need a co-signer. Typically, students do not have much in the way of a credit history. They haven’t bought a new car or financed a home loan, so lenders are usually not willing to take a risk lending them money. However, they will issue a loan if they have a creditworthy co-signer. Parents want their children to get a good education, so they co-sign a loan.

Becoming a co-signer is serious business. You are not just helping someone get a loan. You are taking full responsibility for the loan. If the primary borrower stops making payments for any reason, you are responsible for paying the balance. Failure to pay off the balance will seriously impact your credit rating. In fact, any issues with this loan impacts your credit rating. You are tied to the loan whether you are the primary or secondary borrower. Essentially, a co-signer is taking the risk that a lender was not willing to take.


Dropping Co-signers

At some point, your co-signer will probably want to be dropped from the loan. He was more than willing to vouch for you while you were attending school and getting yourself established. Now that you have a career and a steady income, he feels that you should be able to shoulder your financial commitments. He does not want his credit ruined because you decided not to make your monthly student loan payments.

The student loan consolidation process gives you the opportunity to drop your co-signer. However, the lender must be assured that you have the financial means necessary to make your monthly payments. Lenders often require you to have an income of at least $18,000 a year to apply for private loan consolidation. If you have a co-signer, you will have to prove that you alone make at least that much money each year. Pay stubs, W-2 forms, or direct deposit receipts may be required as proof. Co-signers will also be required to sign paperwork to remove them from the loan and cancel any liability they once had.

Remember, once you drop your co-signer, you are now completely responsible for the payments. If you default on the loan, it will only impact your credit rating.


Adding Co-signers

Most college students do not begin their careers making hundreds of thousands of dollars. They start out in entry-level positions that may not pay too much. Their monthly student loan payments are extremely high, and they need some relief, so they decide to consolidate. However, they don’t make enough money to qualify for private loan consolidation. This does not mean that they should give up their hopes of consolidating. Most lenders will let you add a co-signer during the student loan consolidation process.

It can be hard finding a co-signer. You may be the greatest person in the world, but a co-signer is taking a big risk on you. She is willing to trust that you will be able to make your lower monthly consolidated payments. Otherwise, she will end up paying the loan back for you so that her credit is not destroyed.

Your co-signer must be creditworthy. Lenders are not willing to take a risk and consolidate your loans without thoroughly checking the credit history of your new co-signer. These lenders want to make sure that she has not had issues paying back her own loans. If she has, your application will most certainly be denied.

Co-signers will also need to meet minimum-income requirements. The benefit of adding a co-signer is that you can combine your incomes together. Income verification for you and the co-signer will be required.

Adding a co-signer to your consolidated loan can be costly. Some lenders will charge higher interest rates on these loans. Since you weren’t able to meet their minimum requirements on your own, they need a little insurance policy that protects them from any risk. Higher interest rates are their protection.