As the cost of college continues to rise, many students turn to private student loans to help cover expenses not met by federal aid. However, securing these loans can be challenging without a strong credit history or steady income. That’s where parents often come in — as cosigners.
While cosigning can help a student access the funding they need, it also comes with serious financial responsibilities. Keep reading to learn the key considerations parents should weigh before agreeing to cosign a student loan.
Key Points
• Cosigning for student loans is often necessary due to students’ limited credit history, with about 90% of private undergraduate loans requiring a cosigner.
• The decision to cosign involves considering potential risks, such as impacting personal finances and the possibility of strained family relationships if repayment issues arise.
• Alternatives to cosigning include pursuing federal financial aid, scholarships, and encouraging students to build their own credit history through responsible financial practices.
• Parents can opt for a Direct PLUS Loan, allowing them to cover educational costs directly, but they bear full responsibility for repayment, often at higher interest rates.
• Exhausting all federal aid options is crucial before considering private loans, as they can help fill educational funding gaps while avoiding unnecessary financial burden.
Why Are Student Loans Cosigned So Often?
It’s no secret that the cost of college education has skyrocketed. Consider these statistics:
• The average cost of college has doubled since the year 2000.
• The current average cost for one year of college at a public institution is $38,270, including living expenses. Average tuition and fees at four-year in-state colleges is $9,750; for out-of-state students, it’s $28,386 per year.
• For a private, nonprofit university, that number rises to $56,628 on average, with tuition and fees accounting for $38,421 of that sum.
There are many kinds of funding and different types of student loans to contemplate when budgeting for college. When savings, federal student loans, federal work-study, and scholarships or grants can’t fill the gap, students may look to private lenders to help them cover the rest.
Unfortunately, students just starting out usually don’t have the credit history needed to get a loan from a private lender, so cosigners sometimes step in.
But do students have to have a cosigner for a private student loan? Almost always. Since many lenders won’t lend money to young adults with no or little credit history, they typically require cosigners. Roughly 90% of all private undergraduate student loans have a cosigner.
Recommended: A Complete Guide to Private Student Loans
What Are the Downsides to Cosigning My Child’s Loan?
If you’re looking to privately fund your child’s education costs, it means you likely need the help to pay for college, just like many Americans do. But cosigning for your child’s private student loan is not without potential repercussions. Think over the following:
• When wondering if you should cosign a student loan, consider your relationship with your child. If something goes wrong — missed payments, extended unemployment, or worse, default — the potential for financial stress could create the possibility of misunderstandings and hurt feelings. If your relationship with your child is already tenuous, bringing financial stress into it will likely not help.
• Cosigning could put your own finances at risk. You may have the most responsible young adult in the whole state, but if something goes awry and the loan goes into default, the lender may sue you or hire a collection agency to try to recoup the debt.
A student loan default might also tarnish your credit score. Simply signing the loan also affects your score. Even if you’re not the one making payments, you’re still responsible for the loan, according to the major credit bureaus.
Recommended: What Is a Credit Bureau?
What Are Alternatives to Cosigned Loans?
Do parents have to cosign student loans? Not necessarily. Below are some options to think over instead of cosigning your child’s student loans.
Fill Out the FAFSA®
Filling out the Free Application for Federal Student Aid (FAFSA®) is the first step to figuring out how much federal (and frequently state) financial assistance your child is eligible for. You’ll add your financial information that will determine the amount of federal assistance, which includes Direct Subsidized Loans, Direct Unsubsidized Loans, and other student aid from the federal government, like grants and work-study.
Some states and colleges also base merit aid on FAFSA information, so the application is an important one for all types of financial aid, not just federal.
Help Them Establish Their Credit Score
There are also some other pathways to consider when trying to find loans without a cosigner. One good idea is to have your child start building their credit history. A credit score is typically enhanced over time as the record of their successful payments grows, along with other factors like their outstanding debt, credit mix, and more. A couple of pointers:
• Your student might start by either getting a secured credit card at a credit union or other financial institution, then showing they can make timely monthly payments on a purchase.
• If your student is trustworthy and mature, you could also consider adding them as an authorized user to a credit card you already have. You’ll be responsible for making the monthly payments, but they could benefit from your financial behavior.
Look into Scholarships
The FAFSA will help colleges determine what federal student aid, scholarships, and grants your child might qualify for, but don’t let your student stop there.
Merit scholarships come in all sizes and from diverse sources, including local and national organizations, heritage associations, and various writing and other contests sponsored by nonprofits and other organizations. It might help to look at groups that your family might be closely associated with, such as unions, professional associations, or alumni organizations.
Keep in mind that your child can apply for scholarships while they are still in college, because some are tied to college majors, and your student is likely to have settled on a major after the first year or two. This could open up scholarship options that couldn’t be considered before they declared a major.
Create a Budget
You might also be able to forego cosigning a student loan by making strategic decisions about education costs. Can your student reduce the overall cost of college by ditching the meal plan, living off campus, or even attending a significantly less expensive college?
Or, instead of paring down expenses, maybe your student could consider boosting their income to avoid the need for a cosigner on a student loan. One idea might be to start a low-cost side hustle. Another could be to take a year off to work — this may be enough to close the gap, avoiding the need for a loan altogether.
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Consider Parent Loans
Parents who don’t mind shouldering more of the cost can also take out their own federal student loans with the Direct PLUS Loan, sometimes referred to as a “parent PLUS loan.”
Even though your student benefits from the loan, they are not the borrower, and you’ll be solely responsible for paying it back. Some parents may consider working out a repayment arrangement between themselves and their student. If this will be the expectation, however, it’s a good idea to discuss the arrangement with your student before taking out this type of loan.
Direct PLUS Loans can also be taken out by graduate or professional students. Whether a parent or a graduate student, there is a downside for the borrower. The interest rate for Direct PLUS Loans is often higher when compared to other federal student loans — 9.08% for the 2024-2025 school year versus 6.53% for Direct Subsidized Loans and Direct Unsubsidized Loans.
Recommended: Comparing Subsidized vs Unsubsidized Loans
The Takeaway
Deciding whether to cosign on a student loan is a significant financial commitment that requires careful consideration. While cosigning can help a student qualify for a loan and potentially secure better terms, it also means the parent is equally responsible for repayment.
If a parent is not wanting to cosign, students can look into other financing options, as well. This includes cash savings, scholarships and grants, federal student loans, and private student loans.
If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.
FAQ
What does it mean to cosign a student loan?
Cosigning a student loan means a parent or other adult agrees to take equal responsibility for the loan. If the student fails to make payments, the cosigner is legally obligated to repay the debt.
Why might a student need a cosigner for a loan?
Many students have little or no credit history or income, which can make it hard to qualify for a private student loan on their own. A cosigner with good credit helps improve their chances of approval and may result in lower interest rates.
What are the risks of cosigning a student loan?
The biggest risk is that if the student misses payments, the cosigner’s credit could be damaged, and they would be responsible for repaying the loan. It can also affect the cosigner’s ability to qualify for other credit, like a mortgage or car loan.
SoFi Private Student Loans
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