Low rates. No fees. Just money for college.
If you need a cosigner, you’re not alone. In 2018, about 90% of private student loan borrowers had one. No matter the reason why, and no matter how responsible you are, it can be awkward to ask someone whether they’re willing to put their own credit score on the line for you.
After all, your cosigner accepts legal responsibility for paying the debt if the borrower defaults or does not make payments. A quick Google search for “cosigning a loan” brings up scores of results advising against cosigning for anyone, ever.
But you can prove you’ll be responsible. And with the holidays, it’s a good time to talk about it face-to-face.
How to Decide Who to Ask
First, figure out the requirements for a loan application from the lenders you are considering. Some institutions will require that your loan cosigner is a US citizen or permanent resident, so it is best to just know the basic requirements to apply before having an awkward conversation. Lenders will also look for creditworthiness and steady income from a cosigner, so this may narrow down your list based on your knowledge of your family and close friends.
Just because someone can cosign for you doesn’t mean you should ask. This should be someone you completely trust, and you expect to have a long, positive relationship with while repaying the loan—not the person who seems most likely to say yes.
It’s easy for money to ruin relationships, so don’t ask someone who may feel obligated to say yes but wouldn’t be able to make payments in the event of an emergency. While you should never take on a loan you aren’t positive you’ll be able to pay, life happens, and the last thing you want is to inadvertently pin a huge burden on someone who can’t afford it.
A financially responsible cosigner with excellent or good credit score can help you get a lower interest rate for your loan amount.
How to Show You’re a Responsible Borrower
Start by being transparent about your finances. Get a copy of your full credit report and bring it with you, along with your tax returns for the past few years and pay stubs to prove what you’re earning now. (You’re entitled to one free report every 12 months from each of the three credit reporting agencies in the US.)
While your potential cosigner will take more into account than your credit report, it will show a full picture of your credit history. This could include any missed monthly payments or bank accounts in default, but being open about past financial mistakes shows your commitment to transparency.
Ways to Protect Your Cosigner and Give Them Peace of Mind
1. Know your loan’s cosigner release and missed payment policies
As you’re choosing a lender, make a list of all the questions you have, then call them up for the answers if you can’t find them online. What options do they have in the event that you need to lower your payments? Does your lender offer cosigner release? How quickly can you get a cosigner release, which allows you to take your cosigner’s name off your loan, and what does it take to qualify? If you’re able to show your cosigner that you don’t need them on the loan for the full repayment term, that may minimize their risk and likely make it easier for them to say yes.
2. Have a plan B
Obviously, the plan is for you to pay your monthly bills on time and in full. But say you lose your job, or your partner or spouse needs to move for work, and it takes you longer than expected to find a new gig. Agreeing to be a cosigner is a big decision that involves a lot of trust, and so it’s important that you think through the worst-case scenario before your potential cosigner poses that “if” question to you.
3. Set up account alerts for your cosigner
Make it easy to keep your cosigner up-to-date on your loan progress, when payments are due, when they’re made, and if they’re missed. If your loan servicer offers automatic alerts for your account, sign yourself and your cosigner up. You could also set up automatic forwarding for any emails from your servicer to your cosigner’s inbox. That way, if you do end up having financial problems, your cosigner can come to you long before the lender goes to them, says Jacob Dayan, CEO of Community Tax, a Chicago accounting firm that often helps clients set themselves up well to secure cosigners.
“Ensuring payments are not missed before asking a potential cosigner shows a clear indication of responsibility and long-term viability,” he says.
4. Define the responsibilities between you and your cosigner
Before signing, have an in-depth conversation about all the ins and outs of the loan and how you’ll pay for it, and then put it down in writing for later reference. Your loan payments might not be due for a few years, so having your expectations written down will avoid confusion when the first payment is due.
Lay out what’s expected from you, the borrower, such as setting up Auto Pay from your checking account each month. What are you expected to do if you ever think that you won’t be able to make a payment? What are the conditions for a cosigner release, and how will you work towards that? The more explicit you can be, the better peace of mind it may offer.
How to Start the Conversation
Asking for help may be the hardest part of all of this. But there are some ways you can make it an easier conversation.
If you’re planning to ask a family member you only see a couple of times a year, consider calling or texting them well before Thanksgiving dinner to ask if they’re open to talking about being your cosigner. Instead of asking “will you cosign for me?” you can say, “I’m looking into refinancing my student loans to lower my bills and pay them off faster so I can start saving to buy a house. Would you be willing to talk about this with me when I see you next week?”
If they’re open to it, make some notes about points you can hit, like your track record for paying your credit card bills, your current debt-to-income ratio, and any assets you have that you may be able to tap in the event of an emergency. Open by explaining what you need the money for and be willing to answer any questions they may have about your fiscal situation and ability to repay the loan. Close by letting them know that you don’t need an answer right away (try to give them a couple of weeks to think it over, especially if they’ll need to consult with their spouse), and that you’ll respect their decision if they say no.