Do Parents Have To Cosign Student Loans? Here’s What To Know

Whether you need a cosigner for a student loan depends on whether you take out a federal or private loan. When you take out a private student loan for college, you'll likely need a cosigner. More than 90% of private student loans in the 2023-24 academic year were cosigned, according to the latest report from Enterval Analytics. However, you have other options.

Here's what to know about parents cosigning student loans.

Do parents have to cosign student loans?

The type of student loan you apply for determines whether you are likely to need a cosigner or not.

“Parents do not cosign for federal student loans, but they will have to provide their financial data for the FAFSA if the student is a dependent,” explains Ryan Law, certified financial planner (CFP) and director of the Utah Valley University Money Success Center.

The FAFSA, or Free Application for Federal Student Aid, must be completed by anyone applying for loans from the Department of Education. Most federal loans, including Direct Subsidized and Unsubsidized Loans, are available regardless of income or credit, so no cosigner is required. However, there is one exception.

“When it comes to PLUS Loans, such as Direct PLUS Loans to pay for a graduate education, if a borrower has an adverse credit history, then they may need a guarantor,” says Glenn Sanger-Hodgson, certified student loan professional and founder of Shonan Gold Financial LLC. A guarantor is the equivalent of a cosigner, and Sanger explains it can be “parents, or any other individual who is willing to take on that role.”

In addition to federal Direct Loans, students can take out private student loans from banks, credit unions, or online lenders. However, Law says that most students will need a cosigner for private student loans. Cosigners are required for private loans because private lenders evaluate eligibility based on credit score and income, among other factors.

When is a parent cosigner necessary?

A parent cosigner is necessary in a few different situations, depending on your loan type.

Federal student loans

For federal Direct PLUS Loans, a cosigner (also known as an endorser) is necessary only if you have adverse credit, which Sanger-Hodgson explains is “not the same as a bad credit score.” Instead, adverse credit is “defined by very specific instances of history on the credit report.”

Specifically, an adverse credit history is defined by the Department of Education as having a default, bankruptcy, foreclosure, tax lien, wage garnishment, or write-off of student loan debt within the past five years, or being 90 or more days delinquent on more than $2,085 in debt.

Private student loans

For private loans, a cosigner is almost always needed. “Many students lack an established credit history, which can make it difficult for them to secure loans on their own,” says Doug Roller, owner and investment adviser representative at Crossroads Financial Group.

Most private student loan lenders look for a FICO credit score of 670 or higher, and many have a minimum income requirement, too. For example, to be eligible for a student loan from Earnest, you must earn at least $35,000 annually. Since students often haven't had time to establish much of a credit history and may not be earning much money while in school, they typically must apply with a cosigner to meet the lender's requirements.

“By cosigning, parents can improve the likelihood of loan approval since lenders consider the creditworthiness of both the primary borrower (the child) and the cosigner (the parent),” explains Roller.

Cosigners must meet the lender's income and credit requirements, and they must apply with the primary borrower and provide personal and financial details. They will be listed on the loan and share legal responsibility for the debt.

Lenders require this because loaning to someone with no proven payment track record and no income is risky. The cosigner ensures they'll have someone they can count on to pay off the debt if the primary borrower defaults.

Alternatives to cosigned student loans

The best alternative if you don't want to add a cosigner is to use federal student loans. Since most federal loans don't require a credit check, borrowers who may not have perfect financial credentials can still get favorable rates. Federal loan options include:

• Direct Subsidized Loans: These are available to undergraduate students who demonstrate financial need. There are annual and lifetime limits.
• Direct Unsubsidized Loans: These are available to undergrads and grad students regardless of financial need. There are annual and lifetime limits, though they're higher than the limits for Direct Subsidized Loans.
• Direct PLUS Loans: Graduate students and parents of undergrads can qualify for this type of loan with no cosigner as long as they don't have adverse credit. You can borrow up to the school-certified cost of attendance, minus other aid received.
• No-cosigner private student loans: For those who have maxed out eligibility for federal student loans, there are some private student loan lenders that will accept students without cosigners. These lenders consider factors such as future earning power and area of study, rather than your credit, when reviewing your application. In general, though, you can expect to pay a higher rate for these loans since they are riskier for lenders. You'll need to shop around carefully to find the best private student loan offers that don't require a cosigner.

Current student loan rates

Pros and cons of cosigning student loans

There are some big benefits to having a cosigner, such as a parent.

“Parents traditionally have established credit and income to cover the payments so a student can often qualify for a lower interest rate and maybe a higher loan with the lower rates,” explains Domenick D'Andrea, accredited investment fiduciary and co-founder of DanDarah Wealth Management. “By obtaining a student loan, the student can start building their credit history. This can help them obtain loans on their own without cosigners.”

Unfortunately, there are also some downsides of cosigning for the parent.

“The loan will impact your debt-to-income ratio even though it's not your loan,” D'Andrea warns. “This can impact your ability to obtain a new loan. And, if the student does not make payments at all or on time this will affect your credit score negatively. Creditors can also come after you for repayment, as you are responsible for the payments as a cosigner. This can put a strain on your relationships, as the student is damaging your credit report. This damage can take seven years to be removed from your credit report.”

Roller explains that this can become a big problem, even if everyone has the best of intentions. “While parents may intend for their child to handle payments post-graduation, they cannot control whether this happens,” he says. “If unforeseen circumstances arise — such as job loss or health issues — the burden of repayment falls on both parties equally, potentially leading to financial hardship for parents who may already have other obligations.”

D'Andrea recommends that parents and their children work together to decide what's best. “When deciding to cosign a loan, sit down and discuss the pros and cons,” he suggests. Since this is probably the first borrowing experience for most young people, it's important they are "involved in a decision that will financially impact their future" and “understand how it can affect all involved.”

Tips for managing cosigned student loans

It's important to manage cosigned student loans well to protect your cosigner, and to make sure that you as the primary borrower are taking responsibility for payments.

If a parent cosigns your student loan, you should make sure to choose a loan with a payment plan you can easily afford after graduating. Ideally, you'll set up automatic payments so the money is taken directly from your bank account, and you'll never miss a payment or be late.

Parents and other cosigners should also keep tabs on payments and, if necessary, jump in and send money to the lender if you can't. This will help prevent damage to your — and their — credit.

Many private loan lenders also allow cosigner release after a certain number of on-time payments, so you should ideally apply for this when possible. You can also refinance to a loan in just your name after graduation as soon as you're in a financial position to do so. Both of these options allow your cosigner to be relieved of financial responsibility.