Adding a cosigner to a student loan has become common practice. After all, very few students can qualify for a loan based on their own income and credit profile. A cosigner is usually needed in order to get the loan approved, particularly with private student loans.
But given that student loan repayments can run as long as 25 years, does it make sense to keep your cosigner on the loan for the entire duration of the term? There are risks to your cosigner, and that’s why you should want to remove them from your student loan as soon as possible.
Why You Should Remove Your Cosigner
Cosigning a loan isn’t something that’s part of a casual arrangement. There are implications for the cosigner, which could affect his or her credit standing. It could even impair their overall financial situation. If the cosigners are your parents – which is usually the case – the best strategy is to have them removed from the loan as soon as you can.
For example, your payment history on the loan will affect your cosigner’s credit. If you make any late payments, they will show up as derogatory entries on your cosigner’s credit report, in addition to yours. Naturally, should you default on the loan, your cosigner will be called upon to satisfy the obligation. That can cause serious distress to your cosigner, particularly since student loan amounts are typically large.
Read More: How to Refinance Your Student Loans
There’s one other factor that’s seldom considered in regard to cosigner arrangements. When your cosigner goes to apply for a loan for themselves, the cosigned student loan will likely show up on their credit report. Most lenders will consider this a full obligation of your cosigner. That being the case, it’s possible that your cosigner will be declined for their own loan application, even if you have assumed full responsibility for your student loan’s repayment. When adding the student loan payment to their other obligations, the new lender may decide that their total debt ratio is too high to justify approval.
When you remove a cosigner from a student loan, you not only protect their credit, but you also free them up to borrow for their own purposes in the future. For that reason, you should actively pursue a cosigner release as soon as you are eligible.
Federal Student Loans
Most federal student loans will enable you to qualify even without a cosigner. Federal student loan programs recognize that you are in fact a student, and lack the income and credit profile typically required to support the loan. Repayment is based on your securing employment after graduation.
However, there is one federal student loan type, a Direct…