If you’re trying to pay for school, you get a number of different options. Federal loans, private loans, grants and even scholarships are all available. When it comes to scholarships, federal loans and grants you usually don’t need a co-signer, but those who go for private loans may need that help.
What is a Co-Signer?
When it comes to a co-signer, it means you have someone who will vouch for you. This is someone who signs for the loan with the lender and you.
That means, if something happens and you are unable to pay your loan, the co-signer will be responsible.
If you make a payment late it means that your co-signer is going to be affected in the same way that you are. That’s definitely not something that either of you wants to happen.
Now, getting a co-signer won’t work for just everyone. Sometimes the adult that you want as your co-signer isn’t able to get approved. They might not be interested in taking on that risk either. If they do take the risk it means they’re responsible for anything you don’t pay. It also means that they may not be able to get a loan that they want or need because they’re tied up with yours. Increasing their debt-to-income ratio could mean that they can’t get a new credit card or a car loan, or something else.
Getting a Federal Loan Without a Co-Signer
The lucky thing is that you won’t need a credit history or a co-signer in order to get approved for a U.S. government loan.
1. Direct Subsidized Federal Loans
These loans are one of the most common, and for good reason. You can qualify for one pretty much anytime you need it. You just have to be an American citizen and not have any outstanding federal debts. As of 2020, the interest rates are fixed and they’re only 4.53% too.
When it’s a subsidized loan that means that you don’t have to pay interest while you’re still attending school. Instead, the interest is paid for by the government.
With an unsubsidized loan, however, you’re responsible for interest while you’re in school. You don’t have to pay it then, but you’ll owe it when you get out of school.
With either of these types of loans you’re going to have repayment options when you do finish school and your deferment period is over. These could be standard, graduated or income-based plans.
2. Direct Unsubsidized Federal Loans
The other option is an unsubsidized loan, which is offered also to graduate and professional students. If you have financial need you can get subsidized, but this loan doesn’t care about finances. Just about everyone enrolled half-time can get an unsubsidized loan.
You will be responsible for paying interest on this type of loan and the amount is fixed at 4.53%. Payments are deferred until you graduate, which is more convenient, but you’ll still have to pay for it at that time.
An unsubsidized loan of this type can be $5,500 to $12,500 per year, but it depends on whether you’re dependent or independent. If you’re considered financially independent you may qualify for higher amounts. This is also true if you are dependent but your family would not qualify for a Parent PLUS loan.
3. PLUS Loan
These loans are actually for the parents of students, rather than the student themselves. The student must be enrolled at least half-time and must be in an eligible school. This could be for undergraduate, graduate or professional study. The parents pay higher interest, 7.6% as of 2018, but this allows the parent to contribute toward the education of their child as well.
Now, if you’re comparing a PLUS loan to a private loan you’ll likely get a better rate here. They also don’t care about creditworthiness or a guarantor. They’ll provide these loans to anyone that has avoided specific credit problems.
Getting money is actually quite easy through the Department of Education. But if you need more money than the maximum allowed you’ll find yourself in a little more trouble. There’s only so much available per student for each term. That means you may have to get loans from a private lender if you don’t have enough.
Applying For Federal Loans
Here are the basic steps you should take when applying for federal loans:
Fill Out the FAFSA
The very first thing you need to do is fill out the Free Application for Federal Student Aid.
This form, also known as FAFSA, is a requirement for any kind of federal help. Whether it’s a student loan, a work-study program or a grant, you have to fill out this form. Some schools and states require it for their aid packages and scholarships as well.
The FAFSA4caster tool actually helps you get an idea of what the FAFSA form outcome will be, so you can prepare for your financial outlook. That way, you’ll know what kind of gap you might have in your funding and you can make a plan for how to get the money you’re going to need.
Keep in mind that the FAFSA is entirely free to fill out and that you do not need someone else to fill it out or submit it. That means you don’t have to pay for these things. If you do need help, use a free guide from the government or seek out a free program with your college or university of choice.
The submission period for your FAFSA is October 1st of the year before the term that you’re going to start. You can submit it late, however, by June 30th up to 2 years after you start the term in question.
Ask Your Parents
There are a number of ways that you can be considered a dependent student. If your parent claims you for tax purposes you’re a dependent. This is true even if you don’t live with your parents. In some cases, even if you are not claimed as a dependent you could be considered a dependent.
Just because your parents help you to fill out your forms doesn’t mean that you will require a co-signer in order to get a loan.
What it means is that you’re going to have to put your parents income and information directly onto the forms and that will impact what you actually qualify for in regards to aid.
Make sure you pay attention to what it takes to be considered an independent student. Your financial aid office of the school you will be attending can help you with your forms and what you’re allowed to do.
You’ll receive a Student Aid Report after you complete and submit your FAFSA form. This report will let you know what information about you was submitted and you’ll have to review it to make sure that everything is done right. If there are any problems you’ll need to change them now.
After you get your SAR you’ll get an award letter that lays out all of the aid that you’re able to get. This form will be slightly different depending on which school you plan to go to.
Keep in mind that any loans that you qualify for under your own name are not held jointly by your parents. This means that they are not obligated to pay these loans if you do not. Even if you use their information on the forms – they will not be responsible. The only exception is if they take out a Parent PLUS Loan.
Getting Private Loans Without a Cosigner
When it comes to private loans there is no government backing. You get these through private lenders. There are some things that are important to know about any and all private loans. The other specifics are going to be different depending on the different lenders you work with. Look at each of these things before you apply:
You’ll need to fit each of these in order to get the loan you’re looking for without having to get a co-signer.
- Good Credit – Your credit score is definitely going to be checked here. The lender you choose will look at your score and your reports. A higher score will give you lower rates and that means you may not need a co-signer.
- Good Income – If you have a good amount of money coming in personally you might not need a co-signer. If you make at least $25,000 per year you’ll be set, so make sure you’re getting a job for yourself.
- Balanced DTI – Your debt-to-income ratio needs to be low enough that you can reasonably pay back the loan on your own.
- Citizenship – You must prove your citizenship or prove that you are a permanent resident.
Improve your credit score before you ever apply for a private loan. This will help you get the approval that you’re looking for without needing a co-signer. If you don’t have a great credit score you’ll have to either get a co-signer or accept a higher rate in order to balance out the risk.
Now, if you do need to get a co-signer on your loan you don’t have to keep them there forever. Once you have the opportunity to refinance you’ll be able to remove your co-signer. If you have a federal loan with a co-signer you can refinance to a private loan and remove the co-signer as well. This type of refinancing means that you will have a new loan. You may get better terms for this. Just look at a refinancing calculator to find out what’s going to improve with refinancing.
Now, make sure that you include a co-signer release into your loan if at all possible. This will allow you to meet certain rules and then remove the co-signer completely. That way, your co-signer will not be obligated to make payments on your loan if anything should happen. Sometimes this means making payments for 2 years on-time but it could be different depending on the specific company you work with. If you’re looking to get a loan without a co-signer at all you’ll want to start with the factors above, but if you do have a co-signer make sure you look into a release option.