It is no secret that getting a college education in America can be a costly investment. Scholarships and grants (free money) are a great way to make a dent in your tuition, but they don’t always cover all the expenses involved. Student loans are an option that many turn to as a way to invest in their future if they don’t have enough cash on hand today.
Lenders will want some assurance that you will pay back your loan, and that is when a cosigner can come in handy. In 2015, more than 88% of all private loans (both undergraduate and graduate students) had a cosigner, according to a report from MeasureOne. However, having a cosigner isn’t always the best option for borrowers, or maybe it isn’t an option at all. The cosigner, whether it is a parent, another family member or trusted friend, will also be on the hook for your loan and might not be able to take on that financial risk.
Fear not, there are other options for both graduate and undergrad students who do not have a cosigner when taking out student loans.
How to Borrow Without a Student Loan Cosigner
Before turning to private lending, prospective students should exhaust federal financial options. But sometimes they just don’t provide enough money to complete your education. Private loans can help fill that gap. The Consumer Financial Protection Bureau reports that about 90% of new private loans require a cosigner, so this can be a much more difficult avenue to find financing. Be sure to find out right away if a cosigner is required before investing too much time in a lender.
Interest rates and loan terms offered by private student loan lenders may not be as favorable as those offered by the government unless you have a good credit score and meet the lender’s credit requirements. While the current interest rate for undergrads is 5.05% and 6.6% for graduate and professional degree-seeking students, private loan interest rates can range from 4 to 12%. It is always a good idea to search for reviews on any lender before making a decision.
Drawbacks of Borrowing Private Student Loans Without a Cosigner
While receiving a private student loan with no cosigner is an option for borrowers, it comes with many challenges. Cosigners help share the responsibility of the student loan debt taken on and add a layer of safety for the lender. Students borrowing on their own might have to accept a higher interest rate from private lenders than they would with a cosigner, meaning higher monthly payments in the future. Specifically, undergraduates tend not to have a long credit history for lenders to review their creditworthiness for a lower interest rate. Graduate borrowers might have a higher debt-to-income ratio due to undergraduate loans, making them harder for student loan companies to lend to.
Be sure to pursue all grant and scholarship options before applying for loans, and then utilize federal options before seeking private student loans. Shop around and fully understand your repayment terms and any fees before committing to a loan (even federal loans have an origination fee). Your college’s financial aid office is a great resource for advice, or seek out another financial planner.
How to Borrow Federal Student Loans Without a Cosigner
The first step in any federal student loan application, for both graduate, and undergraduate students, is to complete the Free Application for Federal Student Aid, better known as FAFSA. Students need to file a new FAFSA each school year, to reflect any financial changes. Returning students will instead complete the Renewal FAFSA, which will save you some time. Deadlines for both will depend on the state and college that you will be attending.
Filing a FAFSA does not obligate the student or any parents to later take out federal student loans, but it is a mandatory step in the application. Even if you don’t think you will qualify for financial aid, you should still confirm by filling out a FAFSA. It doesn’t take long and the upsides of applying greatly outweigh the time spent.
Once complete, the Department of Education will send your Student Aid Report. This will estimate your Expected Family Contribution, which is a dollar estimate of what a college will expect you to pay at a minimum to attend based on factors like family income, investment assets, family size, etc.
Federal Student Loan Options That Don’t Require a Cosigner
There are three popular direct loan options for US citizens and permanent resident borrowers without a cosigner; Direct Subsidized Loans, Direct Unsubsidized Loans, and PLUS Loans.
Direct Subsidized Loans
Sometimes called a Subsidized Stafford Loan, Direct Subsidized Loans are offered by the Federal government to undergraduate students that demonstrate financial need. While you are school the interest on these loans is paid by the Department of Education, which is an excellent feature. Students will also have access to income-driven repayment plans offered by the government after graduation.
Your school will determine the amount you can borrow and will use your FASFA as a part of this equation. Students also need to be enrolled at least part-time to full-time to qualify for a Direct Subsidized Loan. There is also a loan limit on the amount that you can take on as a college student. Independent students do have a higher borrowing limit than those who include their parents’ information in the FAFSA. Consult with a financial advisor or college financial aid office before deciding not to include parents on the FAFSA.
Direct Unsubsidized Loans
Unlike Direct Subsidized Loans, Direct Unsubsidized Loans are available to both graduate and undergraduate students. You do not need to demonstrate financial need to apply for a Direct Unsubsidized Loan. Your school will determine how much you can borrow based on the cost of attendance, factoring in any other financial aid you receive.
Students are responsible for paying the interest on their Direct Unsubsidized Loans while still in school. Deferment or forbearance as an option for students who cannot afford to make interest payments while in school and the interest will be added to the principal amount of the loan. Like a Direct Subsidized Loan, students will need to be enrolled at least part-time and there is a limit to how much you can borrow.
Direct PLUS Loans
There are two categories of people that can apply to Direct PLUS Loans; graduate or professional students (in an eligible program) attending school at least part-time, or parents of a dependent undergraduate student, enrolled at least part-time. The second group is often referred to as Parent PLUS Loans.
Much like the first two loan types, a PLUS Loan is based on the information provided in your FAFSA and each school will decide on the amount of the loan based on other financial aid provided. Graduate and professional students taking out the loan themselves do not need to make payments while enrolled in school at least part-time, and have a six month grace period after finishing or leaving school. Parents borrowing for an undergraduate student are expected to make payments once the loan is fully paid out. Deferment is an option, but the interest due will be added to the loan principal.
Direct PLUS Loans run a credit check as a part of the application, and those will poor credit history might need a cosigner to receive their loan. The Department of Education also makes exceptions for some students without a cosigner.
Alternative Ways to Afford Higher Education Without Student Loans
Student loans are not the only way to finance your education, just one piece of the puzzle. There are a number of different options students should consider to round out their financing.
- Applying for scholarships
- Contacting your school about work-study programs or grants
- Working full- or part-time and save up to take classes
- Taking general education courses at a community college
There are also options after graduation to help pay back federal loans. Work for a company that offers tuition reimbursement or utilizing government loan forgiveness programs are two popular options to get support with student debt after finishing school.