If you are getting ready to head off to college, you are probably excited and trying to gather as much information as you can before the big move. One thing to keep in mind is that you may need to use student loans to pay for your college experience as do many other students.
When it comes to the loan itself, you may want one without a cosigner because either you do not have someone to be one or because you simply want to be independent. Either way, there are student loans that do not require you to have a cosigner on board - which we will cover in this guide.
Before we get into the meat of this article, let’s discuss briefly what a cosigner is and the purpose they serve. When you do not qualify for a private student loan, whether because of your credit or another reason, a cosigner will sign off on the loan and share the responsibility of it and ensure that it is paid back on time throughout the loan period.
You, as the student, would likely be paying back the loan, but if for some reason you miss a payment or cannot pay one month, the responsibility falls on your cosigner. Of course, the cosigner will need to meet the credit requirements to sign on the loan.
It can be difficult to find someone to cosign your loan, especially since the person may not want to take on the responsibility. Their credit is also affected if you do not pay. But, luckily for you, there are student loans that do not even require a cosigner.
Ready to learn more? Great. Let’s get started.
Risk of Cosigning Student Loans
There are many reasons to look for financial aid, including student loans, that don't require a cosigner. The most important thing to consider, though, is the risk that comes along with cosigning student loans.
When you cosign a student loan, you are responsible for repayment if the primary borrower cannot make payments, or simply refuses to. No matter the situation, your finances will be impacted if the loans are not repaid in a timely manner. Here are some of the main dangers:
- Damaged Credit Score
- Inability to Qualify for Loans and Credit Cards in the Future
- Responsible for Payments if Primary Borrower Cannot or Refuses to Make Payments
- Inability to be Released from the Loan
- Higher Debt-to-Income Ratio
- May Receive Persistent Collection Calls
When you cosign a student loan, you are putting your financial future in jeopardy. You never know what will happen to students while they are in college. When students have to miss time or drop out - for whatever reason - they may be unable to afford student loan repayment. This leaves the burden on the cosigner and can really cause some financial hardship.
If you do have to cosign a student loan, it's not the end of the world, just be sure to know the risks before doing so. Even if you think the student you are cosigning for will succeed in college, graduate, and obtain a well-paying job, it is always smart to create a plan for repaying the loan if something bad happens.
Pros and Cons of Student Loans Without a Cosigner
There are multiple benefits of having a loan that does not require someone to sign with you, but there are some downsides as well.
Some of the benefits include:
- A financial misstep doesn’t hurt your cosigner's creditworthiness
- You can obtain Federal student loans without a cosigner
- Federal student loans have many benefits themselves
- You do not have any added pressure on your shoulders to satisfy the cosigner
Some of the cons include:
- Limited on how much funding you receive
- You may be rejected from certain private student loan lenders & student loan refinance lenders
- Private loans without a cosigner typically have a higher interest rate
Federal Student Loans Available Without a Cosigner
When you do not have a cosigner, you are limited in the types of loans that you can receive. It is unlikely that you will receive a private loan, but it is possible. You can receive Federal student aid, however, which will help you pay for your schooling and education costs.
The types of financial aid you can receive include scholarships, grants, and federal loans. Below, we will go over some of your options to help you decide which one is right for you.
1. Stafford Loans
You can receive Stafford loans without a cosigner. There are two different types of loans that are available to both graduate and undergraduate students – subsidized and unsubsidized.
For starters, an unsubsidized loan is not awarded based on any type of financial need, which means you do not have to meet any special financial requirements and you do not have to worry about being denied. With an unsubsidized loan, interest does accrue while the student is attending school and you have the option to pay the interest only while in school, if you want.
The amount you can borrow will depend on the cost of attendance for your school, but there are loan limits, which means you can only borrow a certain amount of money over the course of your schooling.
Subsidized loans are similar to unsubsidized except that they are awarded to students who have financial need. This means that you will need to prove your financial need to qualify, and many students will not. When in school, interest does not accrue on these loans. In fact, the government pays the interest on them while students are in school and during other periods of deferment (such as when you fun into financial trouble).
With a subsidized loan, the amount will depend on the cost of attendance for your school and also your financial need. It is possible to receive both subsidized and unsubsidized federal student loans.
2. Parent PLUS Loan
A Parent PLUS loan is one that is able to be obtained without the use of a cosigner and it is only offered to parents of college students.
A parent will need to meet the requirements to be eligible for the loan and the student must be enrolled in an approved degree program at least half time.
The loan is available to parents of both undergraduate and graduate students. One thing to keep in mind is that the PLUS loan does not focus on a parent’s credit score, but whether or not the parent has any adverse credit history. This includes bankruptcies, seriously delinquent accounts, repossessions, and similar things. If there is a negative history, then a cosigner would be required.
3. Perkins Loan
The Perkins Loan program is a federal loan program that provides financial assistance to students and the loan does not require a cosigner. To receive this loan, the student will need to prove that they have a financial need for the loan.
Students must be enrolled in an approved program and not every student will receive the loan and not all schools participate in this program, so you must explore your options.
If it is determined that you do not have a financial need that meets the criteria for this loan, you will not receive it, but you may qualify for a subsidized loan in this case.
Private Student Loans: Getting Approved With No Cosigner
While we stated it is unlikely that you will be approved for a private student loan without a cosigner, it is not impossible, and some students are able to. Private student loans are different than federal student loans and they often have different requirements, higher interest rates, and repayment usually begins immediately. To be approved for a private student loan, you will need to go through a third party such as a bank or specialized lender.
As mentioned, there are requirements that you must meet to obtain a private loan without a cosigner. We will go over some of the requirements below.
1. U.S. Citizen
You cannot receive a private student loan unless you are a U.S. citizen. If you do not meet this requirement, you will be turned down as banks do not underwrite loans to non-citizens due to the risk and other factors.
2. Good Credit Score and History
Of course, you need to have a good credit score and credit history. Minimal history or no history does not constitute good history, so it is important that you understand this. Many students who apply for student loans assume that since they have never had a credit card or been late on their utility payments, they will qualify, but this is not always accurate. You typically must have some type of credit history.
The minimum credit score you can have to obtain a private student loan is typically around 660, but lenders are usually looking for something much higher than that.
In addition, you will need to have a positive credit history, which means you cannot have a high debt-to-income ratio, adverse marks, or concerning trends. If you do, the lender may require you to have a cosigner join you on the student loan.
If you know you will be going off to college and you want to improve your chances of receiving a student loan without a cosigner, then you should start building up your credit as soon as you possibly can. You should start out with a single credit card or two and then work on spending a little, paying it off, and repeating. This will show lenders that you are improving your credit, but remember to avoid missing any payments as this will negatively affect you.
You may not be approved for a private student loan if you do not have any type of income. The reason behind this is because once you take out a private loan, in many cases you must start paying it back right away. There is often no grace period like there is with a federal student loan, so you may be making payments while taking classes.
When it comes to your income, you must be able to reasonably afford living expenses in addition to a monthly loan payment. The lender has an equation that it uses to determine if you can afford the monthly payment or not.
For example, a private loan lender expect a student seeking out a loan to make a minimum of about $25,000 per year. If you do not make this amount, it will be difficult for you to obtain a loan without a cosigner. Also, you cannot count summer jobs or seasonal jobs as income in most cases, and even if you were able to, you would likely not meet the minimum amount to use it anyway.
How to Apply for Student Loans Without a Cosigner
If you are ready to apply for student loans that do not require a cosigner, you will want to start by filling out the FAFSA, or the Free Application for Federal Student Aid. This application is easy to fill out and you can even import your tax information right into the form online.
You can apply either online or through a paper application, but it is generally advised to use the online form as you will receive a much quicker response.
Once the FAFSA is filled out, your application will be processed and you will be able to see what types of federal financial aid you qualify for. The reason behind filling out the FAFSA is because you will not receive financial aid from the government if you do not apply and you will not see if you qualify for any scholarships or grants.
Once the FAFSA is done and you know what you qualify for, then you will know how much you can receive toward your schooling. From here, you can then request, from your school, how much you wish to borrow.
If you find out that the amount that you are approved to receive is not enough to cover the cost of your educational expenses, you can then attempt to apply for a private student loan through a lender. It is important to keep in mind that you want to look around for a lender before you simply just choose one as the rates and fees for each will differentiate.
Once you have found a lender that you like, you can move to fill out the application. You will usually need to supply bank statements and pay stubs along with the application. You should hear back from the lender within a few days regarding its decision.
What Can I Do to Improve My Chances of Getting a Loan Without a Cosigner?
First, you do not need to do anything to be approved for federal student aid, so there are no steps that need to be taken to improve your chances. For example, you can receive a federal student loan even if you have bad credit and an adverse credit history. This has no bearing on your loan status. The only time you need to prove anything is when you apply for a financial need-based loan and then, the only thing you need to do is provide bank statements and or pay stubs.
If you want to receive a private student loan without a cosigner, there are some steps you will need to take and many of these steps cannot just simply be done a couple days before you apply for the loan.
For starters, you will want to make sure you have a solid credit score and history. You can work on improving your credit score by paying bills on time, applying for a credit card and using it sparingly, and keeping your debt to income ratio low. To keep your credit history in good shape, you will want to make sure that you are always paying your obligations and making sure you avoid late payments, etc.
When it comes to your credit history, if you made a mistake ten years ago and your report has stayed clean since, then it will not weigh as heavily, but any recent negative activity will.
Next, you should only ask for the amount of money you need. Sometimes, students will go in and estimate their school costs and then ask for a few hundred dollars more than the cost of attendance. This can hurt your chances of being approved for loan and your lender may not approve the loan based on the amount you requested. But, if your loan is not approved for the amount requested, but you are approved to borrow from the lender, you will be told how much you are eligible to receive.
Lastly, you should have a steady income. Prepare early and secure yourself a position where you are making a decent amount of money so that you can be independent and receive the loan you need when you need it.
If you are not approved for a private student loan, do not panic. Make sure to exhaust all of your federal student loan aid first and then see where you stand. Most of the time, you will find that your student loans cover enough, but sometimes they do not. In these cases, either reconsider the school you plan to go to or you can begin applying for grants and scholarships.
One of the best pieces of advice that you should follow is to try to use as little student loan debt as you possibly can. This will help you better afford college without the worry of debt looming over your head in the end.
Federal Loans vs. Private Loans
As a final thought, you should always exhaust your federal loan options first because private loans are harder to get approved for and they usually carry a higher interest rate.
Another thing to keep in mind is that private loans are not as flexible as federal loans and you do not have as many repayment options as you do with the federal program. For instance, if you fall into a financial hardship, you will still be responsible for paying back your private loan, but with a federal loan, you have the option to apply for a different repayment plan such as a 20-year plan or even an income-driven repayment plan.
Student loans without a cosigner are beneficial because you do not have to be tied to someone else and his or her credit’s fate does not rest in your hands. You will find that you can qualify for all federal student loans without the need for a cosigner and some private student loans depending on your financial situation.
If you are ready to apply for a student loan today, fill out your FAFSA and speak with your school’s financial aid office, or see if you are eligible for a private student loan without a cosigner.