7 Things to Consider Before Cosigning a Student Loan
As tuition deadlines approach, many families turn to Private Student Loans to close the financial gap between what they owe for tuition, food, room and board and the financial aid they may receive through the Free Application for Federal Student Aid (FAFSA). If your student is applying for a private loan, you might be asking: “Do they need a cosigner? And what does that mean for me?”
In most cases, the answer is yes, they will need a cosigner. Many undergraduate students haven’t built the credit or income needed to qualify on their own for a private student loan. As a cosigner, you can help open the door to college financing. But before signing, it’s important to understand how cosigning works and how it may affect both your finances and your relationship with your student.
Below, we discuss seven considerations and ways to reduce risks before you sign on the metaphorical dotted line.
1. What Does It Mean to Cosign a Student Loan?
Cosigning isn’t just a formality. It’s a legal agreement that holds you equally responsible for the loan. The lender uses your credit and income, alongside the student’s, to determine whether to approve the loan and what interest rate to offer. As the cosigner, you’re essentially making a promise to repay the debt if the student is unable to do so.
While cosigning may increase the chance of loan approval and even help the borrower get a better rate, the financial implications for you as the cosigner are very real, and potentially long-lasting.
2. How Does Cosigning Affect My Credit Score?
Once you cosign, the loan appears on your credit report just like any other debt, which affects your debt-to-income ratio.
And if your student misses payments or pays late, it doesn’t just affect their credit score; it affects yours as well. Even if you weren’t notified of the missed payment, your credit may still be impacted.
3. What if My Student Isn’t Able to Pay?
Before you cosign, it’s important to assess the student borrower’s ability and their commitment to repay the loan when they graduate, if they drop below part-time, or if they decide to leave school indefinitely without a degree.
Are they financially responsible?
Are they pursuing a degree with strong job prospects?
Will they have the income needed to make payments after graduation?
Cosigning is a vote of confidence, but it’s also a financial risk. An open and honest conversation can go a long way in setting expectations and making sure your student is ready for the responsibility that comes with borrowing.
4. How Can I Manage the Risk?
Once the loan is approved and disbursed, your role as cosigner becomes more passive. Many cosigners are surprised to learn their credit was impacted because they didn’t receive alerts when a payment was missed.
Even with the best communication, you’ll have limited control over how the student manages the loan. That’s why it’s important to establish a plan for regular check-ins and updates to avoid missed payments or defaults. In extreme cases, the cosigner could face collections, wage garnishment or even legal action.
But there are ways to plan ahead and stay informed so you can step in before problems arise.
Pro Tip: Ask the lender or loan servicer if you can set up payment notifications or get access to the account. Having visibility into the loan helps protect your financial well-being and opens the door for better communication. Most loan servicers will even allow the cosigner to enroll in automatic debit payments if you wish to make the payments on behalf of the student to ensure the payments are made timely and help build the student’s credit.
5. Does My Student’s Loan Offer Cosigner Release?
Some private lenders offer a cosigner release option, which may remove the cosigner from the loan after the student borrower makes a certain number of on-time payments, typically 12 to 48 months. However, not all lenders offer this option, and the release is not automatic.
Before you cosign, ask the lender whether cosigner release is available and what conditions must be met. The student may be required to meet certain credit and income standards before the cosigner can be released. Be sure to get the terms in writing and understand what’s required before you commit.
6. How Will Cosigning Affect Our Relationship?
Money has the potential to strain even the strongest relationships.
To help protect your relationship, talk openly about the financial commitment you’re making. Discuss who will make payments, what happens if they run into financial trouble, and whether you’ll have access to monitor the loan. You might even want to put the plan in writing. Clear communication now can help avoid misunderstandings later.
7. Are There Alternatives to Cosigning?
Before you agree to cosign, explore all other funding options first. Start with federal student loans, which don’t require a cosigner and often have more flexible repayment options.
Encourage your student to search for scholarships and grants, even late into the application cycle. HESC’s Scholarship Search Tool is a great place to start.
You can also ask the school about payment plans, additional aid or campus jobs that qualify for work-study. Even a part-time job can help reduce the need for borrowing or demonstrate the student’s commitment to sharing financial responsibility.
Final Tips
Before cosigning any loan, compare lenders and carefully review interest rates, repayment terms, and cosigner release policies. Know what happens if the borrower faces financial hardship or needs to defer payments.
Cosigning is a generous act that comes with real responsibilities. But with the right information and open communication, it can also be a valuable way to support your student’s goals.
To learn more about Private Student Loans, check out these HESC blog posts or contact us.
Plus, HESC’s Financial Literacy Center offers tools to help you and your student understand borrowing, budgeting and managing loans. And if you run into unfamiliar terms, our Student Loan Glossary can help clear things up.
Whatever path you take, Higher Education Servicing Corporation is here to support Texas students and their higher education journey.