Student Loan Cosigner Responsibilities: A Comprehensive Guide

Cosigning a student loan is a significant financial commitment that can help a student access higher education. It's crucial to understand the responsibilities and implications involved before agreeing to cosign. This article provides a comprehensive overview of student loan cosigner responsibilities, covering the pros and cons, risks, and considerations for both the cosigner and the primary borrower.

What is a Cosigner?

A cosigner is someone who agrees to take legal responsibility for someone else's debt. In the context of student loans, a cosigner is a creditworthy adult, often a parent or family member, who signs the loan agreement alongside the student borrower. By cosigning, they guarantee that the loan will be repaid, even if the primary borrower defaults.

Co-signers offer valuable support to borrowers with low credit scores or a limited credit history. Adding a financially experienced co-signer to a loan or lease may improve the chances of an applicant's approval. Additionally, a co-signer may help a borrower qualify for a larger principal, reduced interest rate or other improved loan terms.

Benefits of Having a Cosigner

For the primary borrower, having a cosigner can be advantageous in several ways:

Increased Approval Odds: A cosigner with a strong credit history can significantly improve the borrower's chances of getting approved for a private student loan.
Lower Interest Rates: A cosigner's good credit score may help the borrower secure a lower interest rate, saving them money over the life of the loan.
Access to Larger Loan Amounts: With a cosigner, borrowers may be able to qualify for a larger principal amount than they would on their own.

Responsibilities of a Cosigner

Cosigners are equally responsible for and legally obligated to repay the loan. As a co-signer, consider whether you are willing and able to repay the loan if the student borrower does not repay the loan on time. Understanding these responsibilities is crucial before agreeing to cosign a student loan.

Read also: No Cosigner Student Loans

Legal Obligation: Co-signers agree to be held legally responsible for a debt should the primary borrower fall behind on what they owe. If the primary borrower fails to meet their financial obligations on a loan or lease, the co-signer is held accountable for any missed payments.
Debt Responsibility: If the primary borrower can't make a payment, you're responsible for the full amount of their debt.
Credit Impact: A co-signed loan will appear on the co-signer's credit reports. Any late or missed payments for a co-signed loan will affect both the co-signer and the student’s credit history.

Risks of Cosigning a Student Loan

Acting as a co-signer can have serious financial consequences. Before agreeing to cosign, it's essential to understand the potential risks involved.

Financial Strain: As a co-signer, you'll experience just as much - if not more - financial risk as the primary borrower. It can increase your debt-to-income ratio.
Credit Score Impact: Because a co-signed loan is recorded on your credit reports, any late or missed payments can have a negative impact on your credit scores. If the borrower defaults on the loan and ceases payment, the debt may be referred to a collection agency.
Relationship Strain: Co-signing has the potential to put stress on your relationship with the primary borrower, who is oftentimes a friend or family member.
Impact on Future Borrowing: Co-signing a loan may increase your debt-to-income ratio, which refers to the total amount of debt payments you owe every month divided by your gross monthly income. Lenders look at your debt-to-income ratio when considering you for a new credit account.

Considerations for the Primary Borrower

Before asking someone to cosign a loan, consider the obligations and risks:

Read Loan Documents: As with undertaking any legal obligation, be sure to read the loan documents carefully.
Timely Payments: The student borrower is required to make all payments on time, as outlined in the terms of the loan.
Impact on Cosigner's Credit: Any late or missed payments for a co-signed loan will affect both the co-signer and the student’s credit history.

Cosigner Release

Cosigner release may be available, upon request, to borrowers with a current account who meet lender requirements. This means your cosigner will no longer be responsible for the loan and will no longer have the debt counted on their credit report-freeing up their credit for other needs.

To learn more about cosigner release, check with your lender.

VSAC Cosigner Release FAQs

What are the eligibility criteria to be considered for cosigner release?

Cosigner release is a benefit available on some VSAC private education loans. To be considered for cosigner release on an eligible loan, all of the following must occur:

The loan must have been in active repayment for at least 48 months.
The loan must be current*.
The primary borrower must meet the applicable credit criteria.

*Current means that you have no past due payments.

How do I apply for cosigner release?

Primary borrower:

Log in to MyVSAC.
Click on the “Loan Info & Make Payments” button.
Click on the “Cosigner Release Application” button and follow the instructions.

Cosigners are not able to apply for cosigner release, the application must be submitted by the primary borrower.

When will I be able to select loans for cosigner release in the online application?

You will be able to select eligible loans once the loan meets all the eligibility criteria.

Why can I only select some of my loans for cosigner release in the online application?

Only loans that are current and have been in active repayment for at least 48 months can be selected. You will either need to bring the loan current (if it is past due) or wait until the loan has reached 48 months of active repayment before you can select the loan.

Read also: Guide to UC Davis Student Housing

I’m a cosigner, can I see which loans are eligible for cosigner release?

No. Only the primary borrower can view through their online MyVSAC account which loans are eligible for cosigner release.

How do I check to see if I’m current on my loan(s)?

Primary borrower:

Log in to MyVSAC.
Click on the “Loan Info & Make Payments” button.
On the “Summary” screen, under “Past Due” it should say “You have no past due payments” if you are current.

You can also click on the “Cosigner Release Application” button and refer to the “Days Past Due” column in the chart.

If you want to make payments online through MyVSAC, the borrower will need to set you up as an Authorized Payer. Once set up as an Authorized Payer, you will need to login using the Authorized Payer Login.

I’m a cosigner, how and when does my credit report get updated if I am released from the loan?

If you are released as a cosigner, VSAC will notify the credit bureaus that your joint obligation on the loan has been terminated.

Alternatives to Cosigning

If you're hesitant about cosigning a student loan, consider these alternatives:

Federal Student Loans: Many students first turn to federal student loans, which can often be a better deal than private student loans, however federal loans don’t always cover the full cost of college and may not be available for all students or types of study. Federal undergraduate loans and some grad school loans don't require credit checks, so even if a student doesn't have a credit history, they could still be eligible for the loan.
Student Loans with No Cosigner: Student loans with no cosigner are available from some lenders, but not all provide this option and the requirements will typically be different with each.
Outcomes-Based Student Loan Without a Cosigner: Full-time college juniors and seniors who meet specific requirements may be eligible for students with no credit or pass the minimum credit requirements but don’t meet the repayment or income requirement.

Advice for Cosigners Facing Difficulties

If you've cosigned a student loan and the primary borrower is struggling to make payments, here's what you can do:

Talk to the Lender or Servicer: Once you find out there’s a problem, immediately contact your loan servicer to discuss your options.
Keep Paying: If the loan servicer tells you to keep making payments, do so.
Split the Bill: If you can get a hold of the student, talk to them about the issue, why it’s hurting you, and figure out a plan.
Lawyer Up: This one probably stings, but you may want to get a lawyer involved to help you navigate this situation.

Key Considerations Before Cosigning

Assess Your Financial Situation: Before cosigning, evaluate your own financial stability and ability to repay the loan if the primary borrower defaults.
Review Loan Terms: Understand the interest rate, repayment schedule, and any fees associated with the loan.
Communicate with the Borrower: Have an open and honest conversation with the student borrower about their repayment plan and responsibilities.
Consider the Potential Impact on Your Relationship: Recognize that cosigning can strain your relationship with the borrower, especially if repayment issues arise.

Cosigner Release and Other Options

Cosigner Release: Certain lenders let you apply to have your cosigner released from your private student loan after you’ve graduated, made a certain number of on-time principal and interest payments, and met certain credit requirements. Basically, you need to prove you can pay back the loan on your own.
Refinancing: The primary borrower can refinance the loan in their name alone, removing you as a co-signer.
Negotiation: In some cases, you might be able to negotiate directly with the lender for a co-signer release. This can involve making a lump sum payment with the lender still being able to pursue the student borrower.

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