Understanding your options for releasing a cosigner from a federal loan is essential for both financial planning and relationship preservation. This article provides a detailed overview of cosigner release mechanisms, eligibility criteria, and strategic considerations for borrowers seeking to free their cosigners from this obligation.

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Understanding the Federal Loan Landscape

Before exploring release options, it is crucial to distinguish between the two primary categories of federal student loans:

(often referred to as Stafford Loans) – These are made directly to students and do not require a cosigner. The federal government serves as the lender, and credit history is not a factor in approval.

– These are made to graduate or professional students (Grad PLUS) or to parents of dependent undergraduate students (Parent PLUS). PLUS loans do require a credit check, and borrowers with adverse credit history may need an endorser (the PLUS loan equivalent of a cosigner) to qualify.

It is important to note that private student loans—which are issued by banks, credit unions, and online lenders—are *not* part of the federal program, and their cosigner release policies vary widely. This article focuses exclusively on federal loan cosigner release options.

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Cosigner Release for Federal PLUS Loans

Unlike private lenders, the U.S. Department of Education does not offer a formal “cosigner release” program for federal PLUS loans. Once a PLUS loan is disbursed, the endorser (cosigner) remains legally obligated for the life of the loan unless the loan is refinanced, consolidated, or paid off in full.

However, there are practical pathways to remove an endorser from a PLUS loan:

1. Loan Consolidation (Direct Consolidation Loan)

A Direct Consolidation Loan allows a borrower to combine multiple federal loans into a single new loan. For Parent PLUS loans specifically, the parent can consolidate the loan into their own name, but this does not release the endorser. The endorser’s obligation is tied to the original loan, and consolidation does not extinguish that liability.

Important Caveat: For Grad PLUS loans, the student borrower can consolidate the loan into a Direct Consolidation Loan. If the student has established a strong credit history and qualifies for a new loan without an endorser, the consolidation effectively removes the endorser from the obligation—because the new loan is a separate legal instrument. However, this is not an automatic release; the borrower must apply for consolidation and meet the credit requirements for a new loan.

2. Refinancing with a Private Lender

Although this moves the loan out of the federal system, refinancing a federal PLUS loan with a private lender can eliminate the endorser’s obligation. The new private loan is issued solely in the borrower’s name, provided the borrower meets the lender’s credit and income criteria. This approach comes with significant trade-offs, including loss of federal protections (income-driven repayment, deferment, forbearance, and loan forgiveness programs). Borrowers should weigh these benefits carefully before pursuing private refinancing.

3. Paying Off the Loan in Full

The most straightforward method: if the primary borrower pays off the entire PLUS loan balance, the endorser is automatically released from all obligations. This may be feasible for borrowers who have experienced a significant increase in income, received an inheritance, or otherwise accumulated sufficient funds.

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Cosigner Release for Private Student Loans (For Context)

While not the focus of this article, it is worth noting that many private lenders offer formal cosigner release programs. Typically, these require:

– A certain number of consecutive, on-time payments (often 12 to 48 months).
– The primary borrower must meet a minimum credit score and income threshold.
– The borrower must not be in default or delinquency at the time of application.

These programs are contractual and vary by lender, so borrowers should review their original loan agreement or contact their servicer for specific terms.

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Strategic Considerations for Borrowers and Cosigners

For the Primary Borrower:

Consistently making on-time payments, reducing debt-to-income ratio, and maintaining a healthy credit utilization rate will improve your chances of qualifying for a new loan or refinancing without a cosigner.

If you intend to consolidate or refinance, inform your cosigner of your plans. Transparency helps maintain trust and ensures there are no surprises regarding their liability.

If you are struggling to make payments, consider enrolling in an income-driven repayment (IDR) plan for federal loans. While this does not release a cosigner, it can prevent default and protect the cosigner from immediate collection actions.

For the Cosigner:

Being a cosigner means you are equally responsible for the debt. You will be reported to credit bureaus if the borrower misses payments, and your wages may be garnished in cases of default.

Federal loan servicers may not automatically notify cosigners of payment status. Proactively request account access or regular updates from the borrower.

In some cases, cosigners can request that the lender or servicer release them if the borrower has demonstrated creditworthiness—but this is not guaranteed and is not a federal right.

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The Role of the FSA Ombudsman

If you encounter difficulties with your federal loan servicer regarding cosigner release or endorser issues, the Federal Student Aid (FSA) Ombudsman Group may be able to assist. They help resolve disputes related to federal student loans, including questions about endorser liability and loan consolidation. Their services are free and confidential.

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Conclusion

The federal student loan system does not provide a simple, automatic cosigner release mechanism. For Parent PLUS and Grad PLUS loans, the most viable options are full repayment, consolidation (for Grad PLUS borrowers with strong credit), or private refinancing—each with distinct consequences. Borrowers must carefully assess their financial situation, future earning potential, and the value of federal loan protections before pursuing any path.

For those with private loans, the process is more straightforward but still requires diligence and a solid credit history. In all cases, open communication between borrower and cosigner is essential to avoid misunderstandings and to plan effectively for the eventual release of that financial obligation.

Ultimately, the goal is to achieve financial independence—not just for the borrower, but for the generous individuals who helped make education possible. By understanding the available options and acting strategically, both parties can move forward with confidence and clarity.

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*Disclaimer: This article is for informational purposes only and does not constitute legal or financial advice. Borrowers should consult with a qualified financial advisor or student loan counselor to discuss their specific circumstances.*

What Is a Cosigner?

A cosigner is an individual who agrees to take joint responsibility for a loan alongside the primary borrower. The cosigner does not receive any of the loan proceeds; instead, they serve as a financial guarantor, essentially vouching for the borrower’s creditworthiness. If the primary borrower defaults on the loan, the cosigner becomes legally obligated to repay the entire outstanding balance, including interest and late fees.

Why Lenders Require a Cosigner

Lenders typically require a cosigner when the primary borrower presents an elevated risk of default. This situation commonly arises when:

– The borrower has a limited or non-existent credit history
– The borrower’s credit score falls below the lender’s minimum threshold (often below 620–640)
– The borrower’s debt-to-income (DTI) ratio exceeds acceptable limits
– The borrower has a history of late payments, bankruptcies, or charge-offs
– The borrower’s income is unstable or insufficient to cover the loan payments

By adding a cosigner, the lender gains an additional layer of security, as the cosigner’s credit profile and income can offset the borrower’s deficiencies.

Key Cosigner Requirements

Credit Score Threshold
Most lenders require the cosigner to have a credit score that meets or exceeds their standard underwriting criteria, typically in the range of 660 to 720 or higher. The cosigner’s score must be strong enough to compensate for the borrower’s weaker profile. Some lenders may require a minimum credit score of 700 for cosigners, while others may accept scores as low as 650 if other factors are favorable.

Income Verification
The cosigner must provide proof of stable, sufficient income to cover the loan payments if the primary borrower fails to do so. Lenders generally require tax returns, pay stubs, bank statements, or a letter of employment. The cosigner’s income should be substantial enough to handle the additional monthly obligation without causing financial strain. A common rule of thumb is that the cosigner’s total monthly debt obligations, including the new loan, should not exceed 40–45% of their gross monthly income.

Debt-to-Income (DTI) Ratio
The cosigner’s DTI ratio is a critical factor. Most lenders cap the combined DTI at 43% to 50%, depending on the loan product and the lender’s risk tolerance. A lower DTI ratio indicates that the cosigner has sufficient financial flexibility to absorb the new payment.

Employment History
Lenders prefer cosigners with a stable employment history—generally at least two years with the same employer or within the same industry. This stability demonstrates predictable income and reduces the likelihood of job loss during the loan term.

Residency and Citizenship
The cosigner must be a legal resident or citizen of the country where the loan is issued. In the United States, for example, the cosigner must have a valid Social Security number and a verifiable physical address.

Existing Relationship with the Borrower
While not a formal requirement, many lenders expect the cosigner to have a close, established relationship with the primary borrower—such as a parent, spouse, or close relative. This is because the cosigner must trust the borrower’s willingness and ability to repay, and the personal relationship serves as an informal enforcement mechanism.

The Cosigner’s Responsibilities

Cosigning is not a symbolic act; it carries real financial and legal obligations. The cosigner must:

if the primary borrower misses payments or defaults

associated with the borrower’s delinquency

if the loan becomes delinquent

if the debt remains unpaid

Moreover, the loan will appear on the cosigner’s credit report, which can affect their ability to obtain future credit, secure a mortgage, or even qualify for certain jobs that require credit checks.

Impact on the Cosigner’s Credit

One of the most significant considerations is the effect of the loan on the cosigner’s credit profile. Initially, the loan may cause a slight dip in the cosigner’s credit score due to the new credit inquiry and the addition of a new liability. However, if the primary borrower makes on-time payments, the cosigner’s credit can actually improve over time, as the loan adds positive payment history and diversifies their credit mix.

Conversely, any late payment or default will severely damage the cosigner’s credit score, potentially by 100 points or more. This damage can persist for years, making it difficult for the cosigner to refinance their own home, purchase a car, or obtain favorable interest rates on other credit products.

How to Apply for a Personal Loan with a Cosigner

The application process is similar to a standard personal loan application, with a few additional steps:

that explicitly allow cosigners and compare their terms, interest rates, and fees.

for both the borrower and the cosigner, including identification, proof of income, bank statements, and tax returns.

together, providing accurate information for both parties.

for both the borrower and the cosigner. This will result in a hard inquiry on both credit reports, which may temporarily lower both scores.

carefully, ensuring both parties understand the repayment schedule, interest rate, and penalties for late or missed payments.

Alternatives to Using a Cosigner

Before committing to a cosigner, borrowers should explore other options that may not involve another party’s financial risk:

backed by collateral such as a savings account or vehicle

designed specifically to establish credit history

that may be approved without a cosigner

through timely bill payments and reducing existing debt

that often have more flexible lending criteria

Conclusion

A personal loan with a cosigner can be a viable pathway to financing for individuals who might otherwise be denied credit. However, the decision to cosign should not be taken lightly. Both the borrower and the cosigner must enter the arrangement with complete transparency, a clear repayment plan, and a mutual understanding of the risks involved. For the cosigner, the potential damage to their credit and financial stability is a serious consideration. For the borrower, the obligation to honor the loan is not just a legal duty but a matter of trust and respect for the person who put their own financial reputation on the line. When approached responsibly, a cosigned loan can serve as a stepping stone to greater financial independence—but only if both parties are fully prepared for the journey.

What is a Cosigner?

A cosigner is a person who agrees to take equal legal responsibility for repaying a loan if the primary borrower fails to make payments. By cosigning, this individual provides the lender with an additional layer of security, significantly reducing the lender’s risk. This often allows the primary borrower to qualify for a loan they might not get on their own or to secure a lower interest rate.

Why Might You Need a Cosigner?

Lenders typically require a cosigner in situations where the primary borrower presents a higher risk. Common scenarios include:
* Limited or Poor Credit History: Young adults, new immigrants, or those rebuilding credit may not have a sufficient credit score.
* High Debt-to-Income (DTI) Ratio: If your existing monthly debt obligations are high relative to your income.
* Unstable Employment History: Recent job changes or gaps in employment can be a red flag for lenders.
* Requesting a Large Loan Amount: A higher loan amount increases the lender’s exposure to risk.

Key Requirements for a Cosigner

Not just anyone can be a cosigner. Lenders have specific criteria to ensure the cosigner is a credible backup for the loan. Key requirements typically include:

1. Excellent Credit Score:
The cosigner must have a strong credit history, typically with a FICO score of 670 or higher (often 700+ for the best rates). Their good credit essentially vouches for the loan.

2. Stable and Sufficient Income:
Lenders will verify the cosigner’s income to ensure they can cover the loan payments if necessary. They will assess the cosigner’s own DTI ratio, including the new loan payment.

3. Low Debt-to-Income Ratio:
A cosigner’s existing debts (mortgage, car payments, credit cards, etc.) should be low compared to their gross monthly income, usually below 36-40%.

4. Meet Age and Residency Requirements:
The cosigner must be of legal age (18 or 19, depending on the state) and often must be a U.S. citizen or permanent resident. Some lenders may require the cosigner to live in the same state as the borrower.

5. Willingness to Undergo a Hard Credit Check:
The cosigner must authorize the lender to perform a hard inquiry on their credit report, which may cause a temporary, minor dip in their credit score.

Responsibilities and Risks for the Cosigner

Cosigning is a serious financial commitment. Before asking someone, or agreeing to be one, understand the full implications:

* Full Financial Liability: The cosigner is legally obligated to repay the entire loan balance, plus any fees and accrued interest, if the primary borrower defaults.
* Impact on Credit: The loan will appear on the cosigner’s credit report. Late or missed payments by the primary borrower will negatively impact the cosigner’s credit score.
* Reduced Borrowing Capacity: This debt is considered the cosigner’s obligation, which can affect their ability to qualify for their own mortgages, auto loans, or credit cards.
* Potential for Strained Relationships: Financial disputes stemming from repayment can damage personal relationships.

Steps to Apply for a Personal Loan with a Cosigner

Both you and your potential cosigner should review your credit reports for accuracy.

Have an open conversation about the risks and responsibilities. The ideal cosigner is not only financially qualified but also trustworthy and reliable.

Compare offers from banks, credit unions, and online lenders. Look for those that explicitly allow cosigners and compare interest rates, fees, and terms.

Many lenders offer a pre-qualification process with a soft credit check, giving you an idea of potential rates without impacting credit scores.

You and your cosigner will complete a joint application, providing personal, financial, and employment details.

If approved, carefully review the loan agreement. Ensure both parties understand all terms before signing.

Alternatives to Consider

If finding a cosigner is not possible, explore other options:
* Secured Personal Loans: Offer collateral (like a savings account or vehicle) to back the loan.
* Credit-Builder Loans: Designed specifically to help establish credit.
* Borrowing from a Credit Union: They often have more flexible lending criteria for members.
* Improving Your Credit First: Take time to pay down debts and make all payments on time to boost your score before applying.

Conclusion

A cosigner can be a powerful tool for securing a needed personal loan, but it requires careful consideration from all parties involved. The primary borrower gains access to credit and an opportunity to build their financial history, while the cosigner undertakes a significant legal and financial responsibility. Clear communication, a solid repayment plan, and a thorough understanding of the lender’s requirements are essential for a successful cosigner arrangement that benefits everyone and protects important relationships. Always borrow responsibly and ensure the monthly payment fits comfortably within your budget.

Securing a personal loan can be a valuable financial tool for consolidating debt, funding major purchases, or covering unexpected expenses. However, not everyone qualifies for a loan on their own due to factors like limited credit history, low income, or a less-than-ideal credit score. In such cases, adding a cosigner can be the key to loan approval and potentially better terms. This article explores the requirements, responsibilities, and considerations for obtaining a personal loan with a cosigner.

What is a Cosigner?

A cosigner is a person who agrees to take equal legal responsibility for repaying a loan if the primary borrower fails to do so. By cosigning, this individual provides the lender with an additional layer of security, significantly reducing the risk of default. Lenders can pursue the cosigner for the full loan amount, plus any fees and accrued interest, if the primary borrower defaults.

Why Lenders Require a Cosigner

Lenders assess risk with every application. A cosigner mitigates this risk by:
* Strengthening Creditworthiness: The cosigner’s strong credit history and score offset the primary borrower’s weaknesses.
* Providing Additional Income: The cosigner’s income is considered, improving the debt-to-income (DTI) ratio.
* Ensuring Repayment: The legal obligation of a second party increases the likelihood of on-time payments.

Common Requirements for a Cosigner

Not just anyone can be a cosigner. Lenders have specific criteria to ensure the cosigner is a credible backup. Typical requirements include:

1. Excellent Credit History and Score
Most lenders require a cosigner to have a credit score in the “good” to “excellent” range (typically 670 or above). A high score demonstrates a long history of responsible credit management.

2. Stable and Sufficient Income
The cosigner must prove they have a reliable income source that is high enough to cover their existing debts plus the new loan payment if necessary. Lenders will verify employment and income through pay stubs, tax returns, or bank statements.

3. Low Debt-to-Income (DTI) Ratio
A DTI ratio compares monthly debt payments to gross monthly income. Lenders prefer cosigners with a DTI ratio below 36-40%, including the potential new loan payment, indicating they are not overextended.

4. Meeting Age and Residency Requirements
The cosigner must be at least 18 years old (21 in some cases) and a legal U.S. resident or citizen with a valid Social Security number.

5. Willingness to Undergo a Hard Credit Inquiry
The lender will perform a hard credit pull on the cosigner, which may cause a temporary, small dip in their credit score.

Responsibilities and Risks for the Cosigner

Cosigning is a serious financial commitment with significant risks:
* Full Financial Liability: The cosigner is legally obligated to repay the entire loan balance, plus fees, if the primary borrower stops paying.
* Impact on Credit Score: Late or missed payments by the primary borrower will negatively impact both credit scores. The loan will also appear on the cosigner’s credit report, affecting their credit utilization and ability to secure new credit.
* Strained Relationships: Financial disputes over missed payments can damage personal relationships.

How to Proceed:

A Step-by-Step Guide

Determine if you truly need a cosigner. Check your credit score and explore pre-qualification options alone first.

Approach someone with a strong financial profile whom you trust implicitly—often a parent, relative, or close friend. Have a frank conversation about the risks and responsibilities.

Compare offers from banks, credit unions, and online lenders. Look for those with cosigner-friendly terms and, ideally, a cosigner release option, which allows the cosigner to be removed after a set number of on-time payments.

Both you and your cosigner will complete the application and provide necessary documentation (ID, proof of income, etc.).

Before signing, ensure both parties understand the interest rate, monthly payment, loan term, and all terms regarding cosigner liability and release.

The primary borrower must prioritize this payment to protect both credit scores and maintain a healthy relationship.

Alternatives to Using a Cosigner

If finding a cosigner is not possible, consider these options:
* Secured Personal Loans: Offer collateral (like a savings account or vehicle) to back the loan.
* Credit-Builder Loans: Designed specifically to help establish or improve credit.
* Debt Management Plans: Work with a non-profit credit counseling agency.
* Improving Your Credit First: Take time to raise your score by paying down debts and making all payments on time.

Conclusion

A personal loan with a cosigner can be an effective pathway to funding when you cannot qualify independently. It requires a willing and qualified individual who understands the substantial responsibility they are undertaking. For the primary borrower, it is a chance to access funds and build credit through consistent, on-time payments. Open communication, careful lender selection, and a clear understanding of the loan terms are essential for a successful cosigner arrangement that benefits both parties without compromising financial health or personal relationships.

Disclaimer: This article is for informational purposes only and does not constitute financial advice. Please consult with a qualified financial advisor or credit counselor for guidance on your specific situation.

What is a Cosigner?

A cosigner is a person who legally agrees to take equal responsibility for repaying a loan if the primary borrower fails to make payments. By cosigning, this individual provides the lender with an additional layer of security. Their creditworthiness essentially “vouches” for the primary borrower, giving the lender confidence to approve an application they might otherwise deny.

When is a Cosigner Needed?

* Thin or Poor Credit History: Young adults, new immigrants, or those rebuilding credit.
* Low Credit Score: Scores below 670 (fair credit) often require a cosigner for favorable terms.
* High Debt-to-Income (DTI) Ratio: If existing debt payments consume too much of your monthly income.
* Insufficient Income: Your income alone doesn’t meet the lender’s minimum requirement for the loan amount.

Typical Cosigner Requirements

Lenders have strict criteria for cosigners because they are the backup plan for repayment. Requirements can vary by lender but generally include:

1. Excellent Credit History:
The most critical factor. A cosigner should have a credit score in the “good” to “excellent” range (typically 670 or above, with 700+ being ideal). Their report should show a long history of on-time payments for various credit types (e.g., credit cards, auto loans, mortgages) with low credit utilization.

2. Stable and Sufficient Income:
The cosigner must demonstrate they have enough steady income to cover the loan payments in addition to their own financial obligations. Lenders will verify employment and income through pay stubs, tax returns, and bank statements.

3. Low Debt-to-Income (DTI) Ratio:
Lenders calculate a cosigner’s DTI by dividing their total monthly debt payments by their gross monthly income. A DTI ratio below 36% is generally preferred, though some lenders may accept up to 43%. A lower ratio indicates the cosigner can comfortably take on additional debt if necessary.

4. Meet Age and Residency Requirements:
The cosigner must be at least 18 years old (21 in some states) and a legal U.S. resident or citizen. They must have a valid Social Security Number.

5. Strong Relationship with the Primary Borrower:
While not a formal financial requirement, lenders often expect a close, trusting relationship (e.g., parent, spouse, sibling, or very close friend). Both parties must fully understand the serious, long-term legal commitment.

Responsibilities and Risks for the Cosigner

Cosigning is a significant financial decision with substantial risk. The cosigner should understand that:

* Full Financial Liability: They are 100% legally obligated to repay the entire loan balance, plus any fees and accrued interest, if the primary borrower defaults.
* Credit Impact: The loan will appear on the cosigner’s credit report. Missed or late payments by the primary borrower will damage both credit scores. The debt also increases the cosigner’s overall debt burden, which can affect their ability to secure new credit.
* Legal Action: If the loan goes into default, the lender can pursue collections, lawsuits, and wage garnishment against the cosigner without first exhausting options with the primary borrower.
* Relationship Strain: Financial disputes can severely damage personal relationships.

Tips for a Successful Cosigner Agreement

Have a frank discussion about finances, repayment plans, and the potential risks. Put a plan in writing.

Not all lenders offer cosigned personal loans. Compare terms from banks, credit unions, and online lenders. Credit unions are often more flexible with member cosigners.

Some lenders allow a “co-borrower,” who is equally entitled to the loan funds and shares responsibility. This can be more transparent than a traditional cosigner arrangement.

Some lenders offer a cosigner release clause. After a set number of consecutive, on-time payments (e.g., 12-48 months), the primary borrower can apply to have the cosigner removed from the loan, contingent on their improved credit standing and a credit check.

Ensure both parties receive and review all loan documents before signing.

Conclusion

A cosigner can be a powerful tool for obtaining a personal loan when you cannot qualify on your own. It can open doors to necessary funds for consolidating debt, covering emergency expenses, or financing major purchases. However, it is a profound commitment of trust and financial liability. Both the primary borrower and the cosigner must enter the agreement with clear eyes, a solid repayment plan, and a full understanding of the legal and personal responsibilities involved. Always prioritize choosing a reputable lender and consider consulting a financial advisor if you have any doubts.

Federal student loans often require a cosigner if the primary borrower lacks sufficient credit history or income. While cosigners help borrowers secure loans, they also share responsibility for repayment. Fortunately, federal loan programs offer cosigner release options, allowing cosigners to be removed from the loan under certain conditions. Understanding these options can help borrowers and cosigners navigate financial obligations more effectively.

What Is Cosigner Release?

Cosigner release is a process that removes a cosigner’s liability for a federal loan after the primary borrower meets specific criteria. This relieves the cosigner from legal and financial responsibility, protecting their credit if the borrower defaults.

Eligibility for Cosigner Release

Not all federal loans allow cosigner release, but those that do typically require:

– The borrower must have made a set number of consecutive, full, on-time payments (usually 12-48 months).

– The borrower must demonstrate the ability to repay the loan independently, often through income verification and credit checks.

– Only certain federal loans, such as some Federal Family Education Loans (FFEL) and private refinanced federal loans, may offer cosigner release. Direct Loans typically do not allow it.

How to Apply for Cosigner Release

– Check the loan agreement or contact the loan servicer to confirm eligibility.

– Complete the lender’s cosigner release application, providing proof of income and payment history.

– The lender will assess the borrower’s credit and repayment ability before granting release.

Alternatives If Cosigner Release Is Not Available

If a federal loan does not permit cosigner release, borrowers can explore:

– Some private lenders offer refinancing with cosigner release options.

– Federal loans may qualify for plans that reduce monthly payments, easing financial strain.

– Public Service Loan Forgiveness (PSLF) or Teacher Loan Forgiveness may eliminate debt over time.

Conclusion

Federal loan cosigner release provides financial relief for both borrowers and cosigners, but eligibility depends on loan type and repayment history. Borrowers should proactively communicate with loan servicers and explore alternatives if release is not an option. By understanding these pathways, borrowers and cosigners can make informed decisions to manage student debt responsibly.

Would you like additional details on specific loan programs or refinancing options?

When you have no credit history or a bad credit history then getting a student loan may not be so easy. If however you are able to get somebody suitable to act as a cosigner and to guarantee the repayment of your loan then this will certainly help considerably in securing a loan.

Students usually have few if any credit cards, no not have car loans and very rarely have a home mortgage loan so that they simply have no credit history against which a lender can assess the risks in giving them a loan. Also, where a student has a credit history it is all too often relatively poor as, like a lot of us when we are young, they have made some irresponsible decisions and overstretched themselves so that they ran into problems meeting their repayment obligations.

Either way the absence of any credit history or a record of late payments and perhaps defaulting on loans will usually place a student in a high risk category as far as many lenders are concerned. As a consequence loan officers, which includes those taking decision on behalf of the Federal student loans programs, will generally process applications from such students with caution. A lot of times loan applications will be denied or, in borderline cases, loans may be approved but a higher interest rate will be fixed to offset the risk and to compensate for higher default rates.

One method of counteracting the lack of a credit history or a bad credit score is for students to have a cosigner on their application for a loan. In a lot of cases this will be a parent and loan officers will look at the parent’s credit history when deciding whether to grant a loan.

It is also it is the parent’s credit history which becomes the chief factor in determining the interest rate for the loan and parents with a good credit history will more often than not receive the best rates, while people with low credit scores will generally pay a high rate. The difference can appear to be small at first glance but can in fact add up to a considerable sum over the normal 10 year repayment period.

For instance, one popular program grants loans at an interest rate of 4% for borrowers with a superior credit history increasing to 6% for borrowers with a poorer but nonetheless acceptable record. This 2% variation might not seem like much but could represent more than $ 5,000 over the life of a normal loan.

It is not uncommon these days for students to require as much as $ 100,000 to finance an undergraduate education and, even if interest is paid from the beginning and is not accumulated, interest at the present Stafford loan rate of 6.8% is about $ 567 every month or $ 6,600 per year. Reducing the interest rate to 5%, which is the current rate for a Perkins loan, lowers these figures to $ 417 and $ 4,820 respectively.

It should also be born in mind that these figures assume that repayment starts immediately. It is however much more common for students to defer repayment until six months after leaving college which will increase these figures significantly.

Students who have a cosigner with a superior credit record will not only improve their chances of getting a loan in the first place, but can also reduce their total loan repayment very considerably.