The cosigner conundrum

Barbara

Lately, we've been getting a lot of questions about student loan cosigners — more specifically, how to get a private student loan without one. Unfortunately, this is one question where we don't have the answer most borrowers want to hear.

That's because generally, you're going to need a cosigner.

Here's the thing: Before lenders loan you a large amount of unsecured debt for your education, which usually won’t have required payments for several years, they're going to want to verify you meet certain credit requirements. It's reassurance that you'll have the means to give them their money back.

As a young person, you haven't had much time to establish a stellar credit history — which brings us to the cosigner. When you bring on a qualified cosigner who assumes equal liability for the loan, the lender gets someone who meets the needed credit requirements and provides the reassurance that the loan will be repaid.

A cosigner doesn't have to be a parent. In fact, by law lenders can't tell you who should cosign your loan. It could be a relative, a family friend, or just someone who's willing to make that financial commitment.

Now, it's no simple task to convince someone to put their credit on the line for you. So let's talk about having a conversation with your potential cosigner. What would you say to reassure them that you're worth the investment?

Here are some potential conversation topics to get you started:

• "I'm first using no- or low-cost options to pay for college."
  Show your cosigner that you're a responsible borrower. Tell them about scholarship and grant opportunities you've been given and that you're borrowing federal student loans before turning to private student loans to fill your funding gap.


• "I've chosen a college that's affordable given the financial aid I've received."
  Assure them that you're not over borrowing and attending a school that's out of your price range. If you can't make this statement, perhaps you should reevaluate your school choice so you're not taking on too much student loan debt to attend college.


• "I'll be able to afford my payments based on what I'll be making after graduation."
  It's important that your cosigner knows you'll be able to repay the loan. Because if you fail to make payments, it's not just your credit you're hurting, but the credit of your cosigner as well. Plus, your cosigner will be on the line for any payment you don't make. Tell them your estimated income after graduation and what your estimated monthly payments will be. Ideally, your student loan payments shouldn’t exceed 10% of your starting salary.


• "I'm already financially responsible with other accounts."
  Have a checking account or credit card? Tell your cosigner about how you balance your checkbook and avoid overdrafts or pay off your credit card each month to show that you're already financially responsible.


• "I'll stay in touch with you and my lender throughout the life of the loan."
  Your cosigner will want to know what's going on with the loan until it's paid off and no longer their liability. Assure them that you'll keep them (and your lender) updated on your situation so if anything happens you can find a solution together.

What else do you think could ease a potential cosigner's mind?