Cosigner or No Cosigner Student Loans, That Is The Question!

Depending on your situation in life, when you are looking for student loans you may need to have someone sign the loan with you or you may be able to obtain student loans without a cosigner. If you’re a college student and have just left mom and dad’s house to go to school, it’s likely that you need at least some financial help to get through your education. For most people, this means that they take out at least one student loan, possibly more. Many students opts to have a cosigner (if available; usually mom or dad) sign up for loans with them, because this means that students will usually get a better rate.

When someone cosigns a loan with you, it simply means that that second party is guaranteeing to repay the loan if you, the primary party, for some reason cannot. This is usually something that happens when the primary borrower has no credit history or one with some problems.

For younger students, this is especially true, since they usually don’t have much of a credit history to speak of. No credit cards, no car loans and no home mortgage. With so little credit history, they will pay significant higher interest rates over someone with an established credit history; this is where the cosigner comes in, because the student can then get the loan at a better rate. Of course, as stated above, it’s also true that the cosigner guarantees to pay the loan if the primary center does not.

If you are an adult going back to school then you will probably be looking at getting a student loan without a cosigner. In most circumstances, if you can get a cosigner whatever your age, you can possibly get a better interest rate. If you have good credit yourself, then a student loan without a cosigner will work fine for you.

If you are someone who either does not have a credit history or has a poor one, then getting a cosigner will help you get a better interest rate. With either private or federal loans, lenders are often wary of borrowers who have little to no credit history. They are also cautious with someone that has checkered credit history with less than stellar financial behavior. At the very least, this type of borrower will pay more interest than the one with an established, good credit history.

For students who obtain a cosigner (preferable if they can do so), lenders will look at the cosigner’s financial details, repayment history, outstanding debt to income ratio, and other standard factors when they decide whether or not they should grant the loan. A stellar credit history gets the best rates, while those with lower FICO scores usually pay more in interest. This can add up substantially over the standard repayment period of about 10 years.

For example, if a loan is borrowed at 4% interest and the total interest payment over the life the loan is $5,489, that same loan amount will garner $10,647 of interest over its lifetime at 6%. Thus, a mere 2% interest difference effectively doubles the interest paid over the life of the loan.

Because it is possible for students and parents to borrow as much as $100,000 to cover the expenses for an undergraduate education, this means that an interest percentage of 6.8% requires one to pay $567 per month or $6,600 per year in repayments. Lowering that same payment amount to 5% makes those same numbers $470 a month or $4820 per year. In addition, this assumes that repayment begins immediately, but for many students, they defer their payments until after they leave school. This will, unfortunately, result in higher payments unless you defer or subsidize.

In short, using a cosigner with good credit can substantially lower how much interest you pay on your loan, and in addition will improve your chances of getting the exact loan you want with the features you desire. To run through some scenarios, go to Bankrate.com or a similar site; these types of sites will have calculators that will let you play with numbers and determine if you need a cosigner or can use a student loan without a cosigner.