Student Loan Cosigner Rights and Responsibilities

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It’s not uncommon for borrowers of private student loans to have cosigners. With little credit history or income, it’s hard for aspiring collegians to qualify for loans without a little help. If you’ve been asked to be a cosigner, or you already are one, you probably know it comes with major responsibilities. But how far do they extend? And what are your rights? Today we answer these questions and more.

What are my responsibilities as a student loan cosigner?

New college students often need a cosigner to qualify for lower interest rates on their private student loans. By becoming a cosigner, you help your family member or loved one secure those rates by promising to be responsible for the loan if they are unable to pay. Your credit score can be affected by missed payments on cosigned student loans, and this could lower your ability to get other loans like mortgages or car loans in the future.

What is the difference between a cosigner and a co-borrower?

A co-borrower is similar to a cosigner in that both can be held responsible for repaying a loan. The biggest difference is that a co-borrower has an equal right to use the loan funds they’re signed onto. For that reason, co-borrowers are often referred to as “co-applicants.” Co-borrowership is common in mortgage loans, where both members of a couple sign the paperwork. With this type of loan, both parties take equal responsibility for paying back the borrowed funds.

In contrast, a cosigner isn’t allowed to dip into the loan funds. They’re simply signed on as a backup in case the primary loan borrower fails to pay. Cosigners are a common feature of personal loans, student loans, and other cases where the primary borrower might not have sufficiently good credit or payment history to qualify for a loan on their own. With this type of loan arrangement, the cosigner doesn’t have to make regular payments. However, they are liable for student loan repayment — including any late fees — if the primary borrower drops the ball.

Can I be released as a cosigner on a student loan?

Some lenders offer a cosigner release option, but not all. To qualify, usually the borrower will need to have made on-time loan payments for a certain number of consecutive months. Check with your lender to see if this is an option before you sign the loan agreement.

Outside of this, the borrower can also release you as a cosigner if they refinance their loans in their own name once their financial situation improves. This only works if the borrower’s credit and income have improved enough for them to qualify on their own. Also keep in mind that this style of cosigner release is only recommended if rates are still competitive in comparison to the rates on the orignal loan. So, for example, if you took out your loan at a 4% interest rate and rates are now 6%, it might not make sense to refinance to release your cosigner now. Instead, you’d need to wait until the rate environment has improved — a process that could take years — if you want to avoid incurring unnecessary interest charges.

I’m not sure that I’m a cosigner. How would I know?

When students take out more than one loan, it’s hard to keep track of which you may or may not be a cosigner on. If you’re not sure, try one of the following:

• Ask the borrower to confirm. If you’re not sure that you are a cosigner, ask them directly.

• Ask the loan servicer to confirm. If the borrower says they don’t remember, ask the lender for more information and be sure to follow up with them if they don’t respond quickly.

• Check your credit report. The three major credit reporting agencies—Equifax, Experian, and TransUnion—also track cosigners on student loans.

• Obtain a copy of the promissory note (the contract between borrower, cosigner, and lender). This should include details about principal, interest, terms, as well as the cosigner of the loan.

I believe I became a cosigner through forgery. What can I do?

If you believe a relative or someone else may have forged your information, consider freezing your credit reports. A freeze is the best way to keep someone from opening new accounts in your name. To learn how, visit each of the three major credit bureaus: Equifax, Transunion, and Experian.

In addition, file an identity theft report with the Federal Trade Commission (FTC). Once you receive an official ID theft report from the FTC, send copies of that document to all three credit bureaus and any student loan servicers involved. The Fair Credit Reporting Act states that once a bureau or loan servicer receives your ID theft report, it must remove the information from your credit report within four business days.

The primary borrower passed away. Am I responsible for payments?

If the primary borrower passes away, some private lenders will release a cosigner from their duty to repay a loan. But it’s at their discretion, and you won’t automatically be relieved of your obligation. So there’s no guarantee that this will happen if the borrower passes away.

In fact, most private student loans offer no such relief for cosigners when the primary borrower dies. This means that if you cosigned a loan for someone who passed away, you might still be on the hook for those payments.

Do I have the right to request deferment or forbearance on a loan I cosigned?

You may be able to request deferment or forbearance for a loan you cosigned. Some lenders allow you to make this request, while others require the borrower to submit it. Contact your lender for specific requirements regarding what paperwork you need and when it needs to be submitted.

Should I cosign a student loan?

Before you cosign a loan, first examine the repayment terms. Make sure you can afford the monthly payments should the borrower fail to pay. Also consider your long-term plans. Cosigning can impact your eligibility for future loans since the borrower’s debt will show up on your credit report. If you plan to take out a mortgage or auto loan in the next few years, think carefully before you cosign.

Next, schedule a serious discussion with the primary borrower. Make sure they have a well-thought-out repayment plan and/or a plan for cosigner release, such as refinancing their student loans when their credit improves.

What are some alternatives to cosigning a student loan?

Just because a borrower asks you to cosign doesn’t mean you have to say yes. It’s also wise to consider these options.

Federal student loans

Encourage your loved one to max out their federal student loans before applying for private loans.1 Unlike private loans, federal loans don’t take creditworthiness into account. Since a borrower doesn’t have to hit a minimum credit score to qualify, cosigners are never required. (The only exception to this is Grad PLUS Loans, which do consider creditworthiness and sometimes require an endorser.)

If your student has maxed out their federal loans and still needs help paying for college, consider taking out federal Parent PLUS Loans. These tend to have more generous protections and repayment plans than cosigned private loans.

Scholarships

Scholarships and grants are among the best ways to secure money for college tuition. Winning this funding can be competitive, but you never have to pay it back. It’s also easier than ever to find scholarships.

Financial aid

Have your student reach out to their school’s financial aid office. They may qualify for need-based aid. Many state and city governments also offer financial aid for local students. Make sure your loved one has filled out their FAFSA to see what they’re eligible to receive before they apply for student loans.

Work to improve the borrower’s credit

If your loved one can’t qualify for affordable loans on their own, encourage them to build up their credit and apply again at a later date. A borrower can establish credit by taking out a credit card and making on-time monthly payments. They can also find new sources of income or pay down existing debts to reduce their debt-to-income ratio.

Find out if you’re eligible to become a cosigner

A student loan cosigner is a person who is willing to pay the loan back if the borrower can’t or won’t pay. It’s not a position you should take lightly, and it’s not something to be done in haste or without understanding its implications.

If you are considering cosigning a loan, first take stock of your personal finances. Make sure you can afford to chip in in case your loved one misses a payment. And, of course, always make sure that you understand your rights and responsibilities before you cosign.

This blog post provides personal finance educational information, and it is not intended to provide legal, financial, or tax advice.

¹ Before applying for private student loans, it's best to maximize your other sources of financial aid first. It's recommended to use a 3-step approach to assembling the funds you need: 1) Look for funds you don't have to pay back, like scholarships, grant and work-study opportunities. 2) Next, fill out a FAFSA® form to apply for federal student loans. Federal student loans do not require a credit check or cosigner, and offer various protections if you're struggling with payments. 3) Finally, consider a private student loan to cover any difference between your total cost of attendance and the amount not covered in steps 1 and 2. For more information, visit the Department of Education website at https://studentaid.ed.gov.