Before agreeing to take out a loan, both cosigners and student borrowers need to understand how their credit will be affected.
With a cosigned student loan, both the cosigner and the borrower agree to take equal responsibility for repayment. So no matter which party is actually paying the monthly payment, it has an effect on both credit reports. The cosigner is just as responsible for the loan as the borrower and how one manages the loan impacts the credit of both.
Student Loan Cosigner Responsibilities
Cosigners can make all the difference in a student’s ability to fund their higher education, but there’s more to the role than just providing a signature. Since they have the same responsibility to repay the loan as the student, they should be active partners.
At the start, it’s important they take part in carefully selecting loan terms and payment plans. Cosigners should be sure they can afford the monthly payments. One of their biggest duties is taking over all payments for the loan if the student cannot fulfill the contract.
As the loan matures, cosigners may want to help students formulate their repayment strategy and anticipate any unforeseen financial obstacles as they arise.
Cosigning is a big responsibility but it can be a worthwhile way to help a student achieve their academic dreams. Just remember when it comes to credit, there are a few risks that come along with the rewards.
How Does Cosigning a Student Loan Affect Credit?
With recurring monthly payments spanning multiple years, student loans for college offer both borrowers and cosigners a way to build their credit over time.
Making regular, timely payments will have a positive effect on each credit report. Cosigned loans that are paid off without any missed payments can be helpful to build good credit scores for both parties.
However, missed or late payments will have a negative impact. If too many payments are missed, the loan risks going into default, which can drag down both credit scores.
The first time a borrower or student loan cosigner may see activity on their credit report is during the application process. This is considered a hard credit inquiry and could impact the credit of the cosigner as well as the student, which can temporarily lower scores. Some lenders may allow borrowers or cosigners to prequalify — a pre-approval process using a soft pull, which does not affect credit.
Learn more about prequalification.
Is it Possible to Get Private Student Loans Without a Cosigner?
To qualify for a private student loan, you must meet the lender’s specific credit history and income requirements. The majority of students applying for a private student loan won’t have enough credit history or income to be approved on their own, and they’ll typically need a cosigner with good credit to join them on the loan.
Students also benefit from cosigners with good credit, who can use their financial strength to qualify for a lower interest rate.
Learn more about credit and getting a student loan without a cosigner.
How Does Releasing a Student Loan Cosigner Impact Credit?
A cosigner release removes the cosigner from the loan and puts full financial responsibility on the primary borrower. The cosigner no longer has their credit tied to the loan and the student borrower’s credit is the only one impacted going forward.
Not all private student loan lenders offer a cosigner release option. Different lenders have their own requirements for removing, or releasing, a cosigner. Be sure to check prior to taking out a loan if this option is important to you or your cosigner.
Learn more about our student loan cosigner release policy.
Interested in cosigning a student loan? Prequalify right now without hurting your credit score.