4 Facts Every Private Student Loan Cosigner Should Know

Cosigning a loan is probably one of the most confusing aspects of private student loan borrowing. However, unlike federal student loans issued by the government, private student loans are given based on income and credit worthiness. Most students need help to qualify.

Before you decide to cosign for a private student loan, read these facts:

1. Cosigners are equally responsible. 

When you cosign a student loan you are co-owner of the loan — just like if you purchased a vehicle with someone else and you both signed the car loan. The loan will be reported on the credit reprts for both the cosigner and the primary borrower. Never cosign a student loan that you couldn’t repay. If the student isn’t able to repay upon graduation, you will be required to do so.

2. Loan amounts are approved based on the cosigner’s income.

You don’t want to be approved for money you can’t afford. One of the benefits of private loans as opposed to federal PLUS loans is that approval is based partly on the cosigner’s income. You don’t want to be approved to borrow $100,000 if you only make $30,000 per year. With a federal student loan, you could be approved for this amount, but that doesn’t mean you should borrow the full amount offered. It’s similar to when you qualify for a $400,000 house but only really want to spend $200,000. Borrow within your means, and only what you actually need.

3. Under certain conditions, cosigners can be removed.

It’s scary to see the Consumer Financial Protection Bureau report that 90 percent of cosigner release requests are denied. However, this doesn’t mean qualified applicants for cosigner release weren’t able to be removed from private student loans. As the borrower, you can take over the loan if you have the credit and income to qualify for it solely. If the goal is cosigner release, borrow within the limits that would be approved based on your expected expected income in your first or second year after graduation. Career services can help you figure out what that number is based on your major and experience. 

4. On tax returns, only the primary borrower can deduct the interest.

The one way cosigners are not equal borrowers is that only the primary borrower can claim student loan interest as a tax deduction. The priomary borrowr can deduct up to $2,500 on their federal tax return. As long as that’s the person who’s making the payments, it’s fantastic. If the cosigner is making the payments, have that person talk to the borrower about potentially contributing the amount of the benefit (the exact amount will vary depending on their income bracket) toward paying off the student loan. It’s an easy way for borrowers who can’t afford payments to contribute.