Paying for college:
It pays to have a cosigner when
applying for student loans
Adding a cosigner to your student
loan application can be a smart
financial move, according to a new
analysis from online student loan
marketplace Credible.com.
The research found that borrowers
who added a cosigner to their private student
loan applications were more than five times
more likely to be approved for a loan. In addition,
borrowers applying with a cosigner reduced
their interest rate by 2.36 percentage points, on
average, opening the door to rates that were 28
percent lower than those available to borrowers
applying without a cosigner.
Private student loans are often used to cover
funding gaps when families hit their federal
student loan limits. Banks, credit unions and
online lenders provide private loans at rates that
can be competitive with the federal government's
Parent PLUS loans, depending on the borrower's
(and cosigner's) credit worthiness.
Save thousands with a cosigner
Credible's analysis of more than 90,000
student loan requests submitted through the
Credible.com marketplace in the last year found
that for a freshman deferring loan payments until
after graduation, adding a cosigner saved them
an average of $3,505 when taking out a $10,000
fixed-rate loan paid back over 10 years. Adding
a cosigner helped borrowers across the entire
credit spectrum get lower rates - even those with
good or excellent credit.
Because students often have little to no credit
history, many, if not most, private student loan
lenders require a cosigner in these situations.
In cosigning a loan, a cosigner agrees to take
responsibility for paying back the loan in full if
the borrower is unable to pay it back themselves.
"Taking on student debt is a serious longterm
obligation, so it's important that students
and their cosigners enter into it wisely," said
Stephen Dash, founder and CEO of Credible.com.
"Cosigners may be underappreciated as a group.
They deserve tremendous credit for helping
many students get the loans they need to further
their education at a significantly lower rate."
Not all cosigners are equal
Not all cosigners are equal, however. The
benefits of applying with a cosigner are tightly
correlated with the cosigner's credit score. The
higher the score, the lower the interest rate
offered by lenders. To help students identify their
strongest cosigner, the Credible.com marketplace
allows students to request rates from multiple
lenders and compare potential cosigners to see
how each cosigner affects their available rates.
Although parents usually serve as cosigners,
anyone with good credit who wants to help a
student can fill the role. Credible found that more
than one in four undergraduate students turn to
other relatives or a spouse, friend, or employer to
serve as a cosigner.
Credible.com offers the following tips for
students seeking to minimize their student loan
debt:
* Shop around. Do your research and comparison
shop. Private lenders offer different types of
loans on rates and terms that depend on the
borrower. In general, it pays to shop multiple
lenders before you commit to one. Credible's
online comparison tool shows you the actual
rates and loan products you could qualify for
with multiple, vetted lenders.
* Keep an eye out for discounts. Many student
loan lenders offer discounts to borrowers
who agree to have payments automatically
deducted, for example.
* Thank your cosigner. Your cosigner puts their
own credit on the line to help you get a lower
interest rate. Why not thank them for all they
do for you? Credible offers a series of cards at
no charge designed to thank cosigners for all
they make possible.
Courtesy BPT
QNS.COM
FALL 2018 11