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If your child is getting ready to go to college, now's the time to figure out what your role will be in helping to fund their education. Perhaps you and your child have already applied for scholarships, grants, and federal student loans, but depending on how much money your child needs for college you may also need to take out private student loans. If so, you may want to consider becoming their student loan cosigner — using your credit to help them get approved for a private student loan.

As most incoming college students don't have the necessary income or credit to take out a private student loan themselves, being their student loan cosigner can be a great strategy to help pay for college. But, before deciding whether it's the right choice for you and your family, you should take in the full picture.

The Basics of Cosigning a Private Student Loan

When you cosign a private student loan with your child, they're the primary borrower and you're considered the co-borrower. As the cosigner, you take responsibility to pay off the loan in the event that your child doesn't. Not only that but, according to CNBC cosigning a loan can have a negative impact on your own credit.

While it can be difficult to do, there are ways to be removed as a private student loan's cosigner if your child refinances their student loans or if you obtain a cosigner release. In fact, some private lenders, such as Laurel Road1 (which is a brand of KeyBank) offer students the opportunity to refinance their parent’s loans2 in their own name often providing them with a lower rate or a shorter term.3

The Cosigning Process

If you need to take out private student loans, shop around and compare rates and terms from various lenders. Once you've selected your lender, you'll need to fill out an application.

As the primary borrower, your child will need to provide:

  • Proof of citizenship or permanent residency
  • Proof of enrollment at an approved school
  • Estimated information about other financial aid they've received and/or will be receiving
  • Information about their income
  • Information about the cost of tuition

As the co-borrower, you'll need to provide information about your income and employment, along with other data, so that the lender can check your credit.

If the loan is approved, both of you will need to sign it and accept the terms. Keep in mind that most online applications accept electronic signatures. Student loan funds are then disbursed directly to the school.

How to Prepare Your Finances to Cosign a Private Loan

Doing prep work with your own finances can help you obtain a private student loan with a low interest rate. The lower the interest rate, the more manageable monthly payments will be once your child graduates.

To start, make sure your credit utilization ratio — a factor in determining your credit score — is as low as possible. You may also want to get a free credit report to make sure there isn't any fraudulent activity that could lead to a loan denial or a higher interest rate. You should also consider whether you'll need to use your credit for something else in the next few years, such as refinancing your home.

Cosigning a student loan means taking on a lot of responsibility; it's more than just using your credit score and history to get a lender to say "yes." At the same time, cosigning your child's student loan could make a huge difference in helping to fund their education. There's a lot to consider; make sure you take time to think about all of the different factors to make the best choice for both you and your child.

1

Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. Laurel Road is a federally registered service mark of KeyCorp®.

2

If you refinance any Federal Student Loans with Laurel Road, you will no longer be able to take advantage of Federal Student Loan repayment options, including but not limited to Income Based Repayment (IBR), Public Service Loan Forgiveness (PSLF), or Pay As You Earn (PAYE) or Revised Pay As You Earn (REPAYE). Additionally, Federal Student Loans offer deferment, forbearance and loan forgiveness options that may not be available with Laurel Road. For more information about these benefit programs and other Federal student loan programs, please visit https://studentloans.gov.

3

Savings vary based on rate and term of your existing and refinanced loan(s). Refinancing to a longer term may lower your monthly payments, but may also increase the total interest paid over the life of the loan. Refinancing to a shorter term may increase your monthly payments, but may lower the total interest paid over the life of the loan. Review your loan documentation for total cost of your refinanced loan.

This information and recommendations contained herein is compiled from sources deemed reliable, but is not represented to be accurate or complete. In providing this information, neither KeyBank nor its affiliates are acting as your agent or is offering any tax, accounting, or legal advice.

By selecting any external link on www.Key.com, you will leave the KeyBank website and jump to an unaffiliated third party website that may offer a different privacy policy and level of security. The third party is responsible for website content and system availability. KeyBank does not offer, endorse, recommend, or guarantee any product or service available on that entity's website.

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