Student loans are an interesting source of credit-based borrowing considering the majority of student loan holders have little or no credit history. Federal student loans (except for PLUS loans) do not require a credit check and will actually help borrowers build a positive credit history. Federal student loans also do not require a cosigner.

90 percent of America’s student loans are held by the Federal government. The remaining 10 percent of student loans are held by private financial institutions such as banks or other lending entities. Those private lenders do require a credit check before issuing loans, even if those intended for higher education.

A cosigner is required if the borrower does not have a credit history

Because most student borrowers are young and still in school, they haven’t had time to build a credit history that will satisfy the criteria for a private student loan. Therefore, the best way to secure a private student loan is by applying with a creditworthy cosigner.

A cosigner can also help the borrower secure a better loan

In some cases the student borrower may have the minimum credit rating to secure a loan, but it’s unlikely that he or she will be offered a very good interest rate. By applying with a cosigner, the lender recognizes there is less lending risk and may offer better terms of the loan.

What is a cosigner?

A cosigner agrees to share the responsibility of repaying the loan to the lender. If the primary borrower is unable (or unwilling) to make the payments on the loan, the cosigner will be legally obligated to repay that debt. A cosigner can be anybody with a credit history that meets the lender’s criteria. Usually, the lender is a parent, but it can be any close friend or relative willing to accept responsibility that comes with cosigning a loan.

The cosigner’s credit will be affected

Cosigners should understand that they’re equally responsible for the loan as the borrower. Even if the borrower never misses a payment, the cosigner’s credit report will still reflect an outstanding balance as a portion of their debt level and it may have a negative impact on their borrowing limits. If the borrower does miss a payment, the delinquency status will impact both the borrower and the cosigner.

The cosigner can be released

Some lenders offer an option to release your cosigner after 1 to 4 years of consecutive, on-time payments. The borrower must also have developed an adequate credit rating to demonstrate that they’re capable of maintaining payments on their own.

Consider federal student loans first

There are a number of advantages to federal student loans over private student loans including subsidized interest payments while in school, fixed interest rates, tax deductions on paid interest, consolidation options, deferment/forbearance, and income-driven repayment plans with potential for loan forgiveness. Remember, parents also have the option to apply for PLUS loans through Federal Student Aid for their undergraduate dependents.

We help manage all types of loans

No matter if your student loans are federal or private, cosigned or not, IonTuition helps borrowers manage them all with one easy platform.