Responsibilities of Being a Student Loan Co-Signer

Here's what you should know before you sign your name as a student loan co-signer

Flickr user Toshiyuki IMAI

In any area of life, it’s generally a good idea to be aware of what something entails before you sign your name to it. When it comes to anything that involves your finances, though, you need to be extra vigilant. If—and when—someone asks you to be their student loan co-signer, you should read every single word of the contract to ensure you have everything about co-signing down pat, so you won’t be surprised down the road.

The Basics of being a Student Loan Co-Signer

Essentially, co-signing a loan means the responsibility for repaying the loan is split down the middle between the borrower and the co-signer. If the borrower misses a payment, or is otherwise unable to pay, the job of paying the loan back falls to the co-signer. This means that, before co-signing your name to a student loan, you better be 100% certain that the person you’re signing for is trustworthy and reliable. If you cosigned, and the borrower misses a payment, you’ll be contacted as well, and your credit score could take a huge hit.

Length of Co-Signer Involvement

For the most part you’re tied to the loan until it’s paid off in full, unless there’s an extenuating circumstance. Sometimes, the person you co-signed with can petition the lender to have you set free from the agreement, but in the vast majority of cases, you’ll be there till the end.

Why Co-Sign a Loan?

With a burden like that on your shoulders, you might be wondering why anyone would ever agree to co-sign a loan. Simply put, in many cases, it can be difficult to be approved for a loan; having someone else’s name on the contract could be the difference between securing an agreement and being without one. Additionally, some lenders offer lower interest rates for co-signed loans, and it’s a great way to build your personal credit score—as long as you pay off the loans on time.

Loan co-signers have equal access to the online “dashboard” that most lenders give their customers. From this starting point, each person whose name is signed to the loan can view their billing statements, check their credit score, and enable and edit certain aspects of the loan. For instance, if the borrower and co-signer decide to change the loan to auto-debiting—meaning it’ll pay itself off without you having to manually transfer money at certain intervals—the co-signer has as much power to do that as the borrower does. Of course, borrowers and co-signers should double-check with each other to make sure that they’re on the same page before making any drastic changes to the plan.

Co-signing a loan is a tremendous act of faith and requires trust and financial confidence in each party. However, if you go about it the right way, it can boost your credit score, lower interest rates, and spur you both to be more financially responsible. With two parties legally held to repayment, you’ll be indebted to each other as much as the lending house, and this responsibility will help ensure that the loan is paid off on time.

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