Student Loans what you need to know before asking for a co Signer

As a student preparing for your first college term you will be very busy establishing that all the necessary funding is in place to guarantee your start in college life. You will have looked for grants and scholarships, and no doubt have made an application for a federal student loan. Even with this finance in place you may still have a shortfall between available funding and the amount you think you’ll need.

Funding a college education is very expensive and you should expect to graduate with a seeming mountain of debt to repay. One should never even think about acquiring all this debt unless the reason for college is to improve your future earning potential, and use the college experience to study hard and reap the future benefits.

It is more than likely that you have the backing of your family who will assist you as much as they can. Ways in which they can help out are to give you financial assistance, take out a loan in their name such as the federal PLUS loan, or act as your guarantor when you need a credit based loan from a private lender.

Federal student loans are not reliant on a credit check, which is why they are relatively easy for a student to acquire. However private loans are dependent on a credit check, and usually as a student does not have a credit history established they will need to have someone co-sign, or endorse the loan. If neither you nor the co-signer you approach are aware of what this means it is far more than them just signing on the dotted line.

Too many relationships have been ruined because relatives have committed to co-signing loans, without being aware of what it really means. Many students are unaware of the financial implications which apply to a co-signer. The way the student handles the loan could have far reaching consequences for a co-signer, and it is imperative that the student knows exactly what he is asking any co-signer to take on.  

Be aware that most loans have a get out clause for the endorser. If you make 36 consecutive payments on time then you demonstrate financial responsibility and can ask to have the co-signer removed from the loan. This will not be possible if you have not handled the loan responsibly. You should aim to release the co-signer from this responsibility as soon as you are able, as appreciation of the fact that they had enough trust in you in the first place to take on this huge responsibility.

By enlisting a co-signer you are asking a third party to assume responsibility for your debt if you fail to make payments. They will be expected to pay the loan for you. The co-signer will not be informed by the financial institution if you are having difficulties making repayments, but they are legally able to pursue that third person for your debt. As the loan will show on the third parties credit file as their liability, then the moment you default on payments their credit history will suffer. They could suddenly find themselves targeted by collection agencies, which may well be upsetting for them. This is usually the first point at which co-signers start to understand the implications of endorsing a loan, when things go wrong. The co-signer has much more to lose by your non payment than you do. Never ignore a payment and leave your co-signer to suffer for it: at the very least approach them as soon as there is a problem so they can help to rectify it before it becomes a problem to them.

Unfortunately there are many instances of the student giving no consideration at all to the co-signer and simply defaulting on the loan. The debt is then made the responsibility of the co-signer and they will end up paying your debt, something they never envisaged. Any form of student loans are non dischargeable, so cannot be written off through bankruptcy.

As a student you have to understand how imperative it is that you are asking a co-signer to take on an enormous financial risk. Make your loan repayments the first priority when you graduate. You should try to have your co-signer released from the loan as soon as you can and thus relieve the co-signer of any associated anxiety. Never abdicate your own responsibility for the payments as any irresponsibility on your part could have potentially devastating consequences for your co-signer. Instead show your co-signer that their trust was well placed, so they can feel proud of helping you.