Students who opt for private loans to pay for college may have to contend with finding a cosigner. Teens usually don’t have the credit history or income needed to secure a loan on their own, so they may ask a parent or close family member to be their cosigner. If your child, grandchild, or other relative has asked for support, here’s what to consider:
Consider funding options
Many students can benefit from scholarships offered by local non-profits, organizations, or religious groups. It’s not uncommon for community organizations to offer grants and cash rewards to local students who are heading off to college. Parents may also have personal savings or nest eggs that they can use to pay for college tuition partly or fully. If you have some type of permanent life insurance, like whole life insurance, you may decide to use the policy’s cash value to pay for tuition.
You’re taking legal responsibility for the loan
By cosigning a loan, you take on responsibility for the loan. If the primary borrower (the student) is unable to repay the loan, it will be up to you to repay it. Any late or missed payments can affect your credit score as well as the primary borrower’s. This may be too big a responsibility for some, while others may not mind the risk. Regardelss, it’s important to consider your own financial situation before agreeing to cosign a private student loan.
Cosigning a loan can have useful benefits
When you cosign a loan for someone, you’re helping them create credit history. Support from a cosigner paired with responsible credit card use and timely bill payments may help ensure they get approved for car loans, credit cards, and mortgages more easily further down the line.
You may be rid of the loan sooner than you think
Many cosigners are worried about being on the hook for an education loan for years. However, some private lenders may be willing to release the cosigner from their obligations after a certain period of time and if the borrower meets certain requirements. Typically, the primary borrower must make a certain number of timely payments and fill out a cosigner release form, releasing the cosigner from their obligation. The number of timely payments needed may differ from lender to lender. There may be other requirements, such a stable income and a certain credit score. Not every lender offers this feature, so look out for student loans that allow for cosigner release.
The bottom line
There’s a lot to think about before cosigning a student loan. It’s important to weigh the pros and cons and make the right choice for your financial situation. Whatever you decide, be sure to have a conversation about repayment plans beforehand.
The primary purpose of permanent life insurance is to provide a death benefit. Using permanent life insurance accumulated value to supplement retirement income will reduce the death benefit and may affect other aspects of the policy.