Do I Need a Cosigner as a Study Abroad Student?
If you are preparing to study abroad for a year or semester, you know that you have a lot on your plate. Completing applications, submitting letters of reference, confirming that credits will transfer, and finding financial support are all top priority for you right now. You might be considering a private student loan to help fill the financial gap, which will raise a whole new slew of questions, such as whether or not you will need a cosigner.
Why Private Student Loans?
You and your parents might be considering applying for a private loan for study abroad through a bank or other organization. The benefits of this type of loan include:
- Funds can be used to pay for things such as airfare, the cost of living, and cultural excursions while abroad.
- Interest from student loans is tax deductible.
Due to low interest rates and often no loan fees, private loans can be a good alternative to using high interest rate credit cards or home equity to pay for the cost of studying abroad. Shop around to find the best student loan deals.
What is a Cosigner?
A cosigner is a person who can legally sign loan papers or documentation with another person in order to help the other person obtain a loan. The cosigner makes a legal agreement to be jointly responsible for repayment of the loan if the first signer should fail to pay their debts in a timely manner.
Because first-time borrowers do not have a credit history, lenders typically take a cautious approach to them. This isn't necessarily because the borrower is considered a poor credit risk, but because there isn't enough information to make an informed decision. This is particularly true now, as lenders tighten their credit criteria.
Cosigners generally have well-established credit to help the borrower qualify for the loan. A large range of people can be your cosigner, as long as they are creditworthy, understand and accept the responsibilities of being a cosigner, and meet all of the specific co-signer requirements set by the lender.
Do I Need a Cosigner?
If you are directly enrolled in a school outside the US, or enrolled in a school inside the US through which you are studying abroad, and you are a US citizen of permanent resident, you do not need a cosigner if you have a long line of good credit history. However, as a student, having a cosigner is often a good idea, as you likely have not have much opportunity to build up a good credit history yet. Having a cosigner can increase the likelihood that you will qualify for a loan, and can help you receive the best interest rate possible if a loan is granted.
Who Should I Ask to be My Cosigner?
Most cosigners are friends or family members of the student who agree to back the loan in case the student is unable to make the payments. The cosigner must be a creditworthy US citizen or permanent resident who has lived in the US for at least two years. The most common individuals whom international students ask to be their cosigners include:
- A parent or guardian
- A relative such as a grandparent, aunt, uncle, or cousin
- A spouse
- Another individual who is supportive of the student’s higher education goals
When evaluating potential cosigners, lenders look at a number of factors, including:
- Ability to pay
- Lenders compare the potential cosigner’s total debt to their total income and look at the amount of student loans the co-signer already has.
- Lenders look at how long the cosigners have lived at their current address, whether they have a stable job, and whether they have an established credit history.
- Willingness to pay
- Lenders also look at the potential cosigner’s credit score and their payment history on other types of credit, including credit cards, mortgages, and automobile loans.