Financial Tips Archive

Financial Planning Tips

Test Your Knowledge of Credit Freezes
(Updated: 08/06/2018)

Many students enrolling in college shortly after graduating from high school lack the credit history necessary to get private loans approved in their own name. These students typically have a thin or nonexistent credit history, or even worse, they have demonstrably poor credit. To get the loan approved, or to secure a better interest rate, many students apply with a creditworthy cosigner.

True or false?
The student is still solely responsible for repaying the debt, even if he or she applies with a cosigner.

Answer: False

A cosigner is a co-borrower, so both the student and his or her cosigner are jointly responsible for repaying the debt. If the student is late with a payment or defaults on the loan, the lender will turn to the cosigner to start making the monthly payments. If the cosigner fails to make the payments, his or her credit history will suffer.

It is important for cosigners to fully understand their responsibilities before agreeing to cosign and to take precautions to protect personal financial interests. Here are a few tips to help prospective cosigners avoid a potentially uncomfortable and costly situation:

  • Because you are equally responsible for paying back the loan, only cosign a loan if you are capable of repaying the loan entirely on your own.
  • Cosign a loan only if you trust that the borrower is responsible, capable of repaying, and fully intends to repay the loan on his or her own.
  • Think about what would happen to family relationships if the borrower is unable or unwilling to repay the debt. Money has a way of coming between even the closest of families.
  • Carefully review the promissory note before signing it. In some cases, the cosigner agrees to the same arrangement for all subsequent loans within the same period of enrollment.
  • Although difficult to qualify for, a cosigner release is an option worth considering. It removes the cosigner from the loan if the borrower can demonstrate consistent on-time payments over an extended period of time (often 24-48 months).
  • Consider entering into a signed and notarized agreement with the borrower with language stating that any payments made by the cosigner will be reimbursed by the borrower.

Back to Archive

© Copyright 2018 Commonwealth Financial Network