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Co-Signer Is Key for Private Student Loans
Monday, July 21, 2008
Many of you who are applying for private student loans have found out that you will need a co-signer for your loan.
What is a Co-Signer?
A co-signer is someone who essentially signs on to the student loan agreement with you. They agree to pay back the loan if you are unable to.
Why Do I Need a Co-Signer?
Chances are that you have very little or no credit history. That means, you do not have a track record of paying back money that you owe (e.g., paying off credit card bills, paying utility bills on time). That makes it difficult for a student lender to determine your reliability as a borrower. Are you going to pay back the money that they loan you to go to college?
Many lenders are going to require that you have someone with a strong credit history serve as a co-signer on your student loan.
Who Do You Want as a Co-Signer?
You ideally want to have someone with a strong credit score. A higher credit score is better and will likely result in lower interest rates on your private student loans. Someone with a credit score of 740 or higher is generally a good person to have as your co-signer. Someone with a credit score below 650 may not be a tremendous help when applying for a student loan.
Co-Signer Release Benefits
Many lenders have a co-signer release benefit. Usually, this benefit is tied to a certain number of on-time payments. The basic reason being that once you've made dozens of on-time payments in a row, your risk of default is likely much lower. And the need for a co-signer is not as critical.
Labels: Financial Aid, Private Loans
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