What is the Difference between a Cosigner and a Credit Reference?

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Erica Gellerman

By Erica Gellerman

February 7, 2019

Most students will not qualify for a private student loan on their own. Lenders like to see that a borrower has a track record of successfully paying off debt before they are willing to lend money. Student borrowers usually don’t have much, if any, of a credit history. A thin or nonexistent credit history can make it difficult for them to obtain a private student loan without help.

If a student doesn’t qualify for a private student loan on their own, they are often asked to provide a loan cosigner. According to a MeasureOne study, 92% of undergraduate private student loans required a creditworthy cosigner.

The role of a cosigner can be confusing, especially for a parent who is trying to help their student get financing for the first time. Cosigners sometimes believe that they are merely giving a credit reference, to assure the lender that the student fully intends to pay back the loan. In reality, a cosigner is taking on a much more serious legal and financial obligation.

What is a credit reference?

A credit reference is a summary of information about a person’s past track record with credit. This often includes how much they borrowed and if they paid off the loan successfully. The most common type of credit reference is a credit report. Another example is a landlord confirming that a tenant paid the rent on time.

A personal reference, while often used in rental and job applications, isn’t generally used during a loan application. It’s much more common to find a loan application asking for a cosigner, rather than a reference.


What is a cosigner?

A cosigner is a co-borrower, equally responsible for repaying the debt. When you cosign a student loan, you agree to repay the loan. It’s not just the student’s liability; it’s yours as well. If the student doesn’t repay the loan, you must make the loan payments. If the student has any late or missed payments, it will affect both their credit score and your credit score.

According to a survey by CreditCards.com, 38 percent of cosigners had to pay part of a cosigned loan or credit card bill and 28 percent of cosigners had a drop in their credit score due to the borrower missing a payment or making a payment late.

If those stats don’t convince you that this is a serious obligation, this will: private lenders will hire collection agencies to force a cosigner to pay when the student borrower doesn’t make payments. They may even sue the cosigner to recover the debt.

Why become a cosigner?

Often, becoming a cosigner on a loan can make sense financially – for the student borrower. It can be a way for the student to be approved for a private student loan when they don’t have a long credit history. It may also help secure a lower interest rate. Many private student loan lenders require a cosigner before they will approve the loan.

While parents often want to help their student secure the financing they need to pay for college, it’s a good idea to do some research before becoming a cosigner. You need to know exactly what you will be legally responsible for, why a cosigner is required and how becoming a cosigner can impact you financially.

Can you be released as a cosigner?

Perhaps you didn’t know exactly what your obligations were when you signed the loan promissory note or you no longer want to be legally required to repay the debt. Are there any options to be released from the loan?

Some private lenders do allow you to be released from a loan after the student makes a certain number of payments and meets certain credit requirements. You’ll want to check the terms and conditions of the loan to see if a cosigner release is possible. You can also contact the loan servicer to learn what steps you’ll need to take to qualify for cosigner release.

Becoming a cosigner is a serious and often long-term commitment. Before you cosign a loan, take the time to fully understand the implications this has on your financial future.

A good place to start:

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