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According to the Consumer Finance Protection Bureau (CFPB), 90% of private student loan borrowers require a cosigner. You will need a cosigner for your student loans if you do not have good credit or history, high income, or a low debt-to-income ratio.
If you are a student, you typically do not have enough income or good credit to qualify for a private student loan.
Parents are the most common co-signers on private student loans. Due to their creditworthiness and income, the likelihood of being approved for a private student loan is significantly higher.
Requirements for a cosigner for your student loan
To qualify for a private student loan, you must have a good income and a good debt-to-income ratio. You must also have good credit.
Lenders typically want to achieve a total debt-to-income ratio of less than 50%. This means that your total monthly debt repayments cannot exceed 50% of your income.
This is an overly simplistic example, but if you make, say, $3,000 per month, your total debt repayments shouldn't exceed $1,500 per month.
A private student loan lender will look at the monthly cost of your future loan and see if you can afford it.
Additionally, to get a student loan, you typically need a credit score of over 700. To get the best interest rates, you need a credit score of over 800.
If you are a student who does not meet the above criteria, you will need a co-signer who meets the criteria. The cosigner is just as responsible for the student loan as the primary borrower. This is how lenders protect themselves.
Disadvantages of having a co-signer
Being a co-signer is a financial risk. You are just as responsible for the student loan as the original borrower. If the student does not repay the loan, the cosigner must pay the loan.
If the loan goes into collections and defaults, the co-signer is also at risk of being sued.
Some student loans offer “cosigner release.” This is a program where the borrower can become a co-signer if he makes on-time payments for 24-36 months and meets the above lending criteria (good income, DTI and credit score) to be released from the loan.
However, release by co-signers is very rare.
People ask too
Can I get a student loan without a cosigner?
You can get a student loan without a cosigner, but this is rare. You must have a good income, a low debt-to-income ratio, and good credit. This can be difficult for a young student to achieve.
How can I get a student loan if my parents don't co-sign?
Anyone can co-sign a student loan. While parents are the most common, you can also ask other relatives (like grandparents, aunts, uncles, older siblings, etc.) or even friends.
What percentage of student loans have a cosigner?
According to the CFPB, 90% of private student loans have a cosigner. Federal student loans never require a cosigner.
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