The cost of higher education continues to rise, and as a result, many students turn to student loans to finance their education. However, not all students can qualify for loans on their own, leading them to seek a co-signer. So if you are considering cosigning a student loan, it’s essential to understand the pros and cons before deciding.

What it means to cosign a student loan

When you cosign a student loan, you agree to be responsible for the debt if the borrower is unable to pay it back. Essentially, you are taking on the risk that the lender is unwilling to take. This means that if the borrower defaults on the loan, you will be held responsible for paying it back.

Who can cosign a loan?

In most cases, anyone who is over the age of 18 and has a good credit score can cosign a loan. This could be a parent, grandparent, sibling, another family member, a close friend, or even an employer.

Pros of cosigning a student loan

When considering cosigning a student loan, it’s crucial to weigh cosigning a student loan pros and cons carefully. Ultimately, deciding whether or not to cosign requires careful consideration and understanding of the potential benefits and risks.

Pros 

1. Cosigning could help the student build credit: If the borrower can make their payments on time, this could help them to build credit, which could be valuable for their future financial well-being.
   
2. Students may be eligible for lower rates: If the borrower has a cosigner with good credit, they may qualify for a lower interest rate than they would on their own.
   
3. Helping the student finance their education: Cosigning a student loan can help a student who would not otherwise qualify for a loan to finance their education, opening up opportunities they may not have otherwise.
   
4. Showing support and belief in the student’s potential: By cosigning a student loan, you are showing your support for the student’s potential and future success.
   
5. Potentially being released from the cosigner obligation: Depending on the terms of the loan, you may be removed from the cosigner obligation after a certain period or after the borrower has established a good payment history.
   
6. May help international students become eligible: International students may need a cosigner to be eligible for specific student loan programs.
   
7. Tax benefits: In some cases, the interest paid on a student loan may be tax-deductible, which could provide some financial benefits for both the borrower and the cosigner.
   
8. Opportunity for the cosigner to monitor the loan: As a cosigner, you will have access to information about the loan, including payment history and account balance, which could help you monitor the loan and ensure that the borrower is making timely payments.
   
9. Strengthening family ties: By cosigning a loan, you are helping a family member or loved one achieve their educational goals, which could strengthen family ties and relationships.
   
10. Investing in the borrower’s future: By cosigning a loan, you are investing in the borrower’s future and helping them achieve their career goals, which could have long-term benefits for both the borrower and the cosigner.

Cons 

1. You could be responsible for paying it back: The most significant risk of cosigning a student loan is that you could be held responsible for paying it back if the borrower cannot. This could have a negative impact on your credit score and make it more difficult for you to obtain credit in the future.
   
2. Legal action against you: If you are unable to make payments on the loan, the lender may take legal action against you, which could result in wage garnishment or even the seizure of assets.
   
3. Strained relationship: If the borrower is unable to make payments or defaults on the loan, this could create tension or strain in your relationship with them.
   
4. Impact on your ability to obtain credit: Cosigning a student loan could impact your ability to get credit in the future or result in higher interest rates.
   
5. Potentially not being released from the cosigner obligation: Depending on the terms of the loan, you may not be removed from the cosigner obligation even after a certain period or after the borrower has established a good payment history.
   
6. Impact on credit score: If the borrower misses payments or defaults on the loan, it could have a negative impact on both the borrower’s and the cosigner’s credit scores.
   
7. Responsibility for the loan after the borrower’s death: If the borrower dies, the cosigner may still be responsible for paying back the loan, which could be a significant financial burden.
   
8. Difficulty in removing the cosigner: Depending on the terms of the loan, it may be difficult or impossible to remove the cosigner from the loan, even after the borrower has established a good payment history.
   
9. Lack of control over how loan funds are used: As a cosigner, you have no control over how the borrower uses the loan funds, which could be a concern if you do not trust the borrower to use the funds responsibly.
   
10. Potential for fraud or identity theft: As a cosigner, you are providing personal and financial information to the lender, which could put you at risk for fraud or identity theft if the lender is not trustworthy.
    

If you decide to cosign a student loan, it’s essential to protect yourself, such as communicating with the borrower and ensuring that they are making payments on time. Additionally, you may want to consider setting up a plan with the borrower for how the loan will be repaid and what will happen if they cannot make payments.