Why have a cosigner for a private student loan? What makes a private education loan different from a car loan or a mortgage?

Private student loans are "unsecured" loans, which means there is no collateral or other tangible asset to back up the loan. Private loans are issued in the name of the student, so a lender can only make a decision to lend you money based on your potential for paying back a loan. This is done looking at your credit score, annual income, credit history and other criteria.

In contrast, a car loan is a 'secured' loan, backed by the vehicle itself which can be repossessed if you don't pay back the loan. A mortgage is backed by the house. A private education loan can only be unsecured; otherwise, how can a lender repossess your education like a car or a house? It can't.

Why all the fuss about having a co-signer for private student loans?
A private education loan, by law, must be in your name. Yet, because you're a college student, most likely your credit score falls below lender standards for considering you a good credit risk.

Now, don't feel embarrassed or ashamed about this; most of your peers don't qualify either! So rather subject yourself to a "denied" notification, why not get a co-signer?

Benefits of a co-signer for the student loan borrower:
		Better chances of getting approved for a private education loan
		Lowers interest rates, which means lower cost of borrowing
		Lower interest rate than rates generally available on other forms of credit, such as a personal loan or a credit card
		Lower origination fees
		Help build your own positive credit history

What is a co-signer?

A co-signer is someone who promises to pay back a loan only when the primary borrower is delinquent or goes into default.

When should a co-signer be used?

If you are concerned about being approved for a student loan, or have less than 27 months of credit history,  having a co-signer can increase your chances of being approved.

Any adult who has good credit, and is willing to take on the loan liability if you should fail to pay back the loan. This can include parents, grandparents, siblings, spouses and friends.

How to ask someone to be a co-signer

Finding someone who will cosign your private student loan may be easy. For some people, it might be a little embarrassing or uncomfortable to ask someone to be a co-signer.

However, it doesn't have to be. Instead, think of it as a time to have a heart-to-heart conversation with your potential co-signer. Borrowing money for your education is a serious step for both of you, yet it can be a "win-win" situation: you get the student loan you need and your co-signer gets the satisfaction of helping you get your college degree!

Click here for tips on how find and ask someone to be your co-signer!

Your responsibility when asking someone to be a co-signer

It's important to understand that a co-signer on a loan is doing you a favor by taking on the responsibility of paying your loan if you default or miss payments. For the co-signer, this obligation counts the same as his or her own loans on a credit report and is factored into their debt-to-income ratio. This may affect a co-signer's ability to obtain his or her own financing at a later time.