Co-borrowers Rights and Responsibilities

Co-signing on a private student loan is a hard decision. You should know your rights and responsibilities before signing and have an honest conversation with the student borrower about the amount being borrowed and repayment expectations.

What are my responsibilities as a co-signer of a private student loan?

  • You are a co-borrower and are fully responsible for the loan if the student borrower cannot pay.
  • The interest rate, terms, and conditions will depend on your creditworthiness. The better your credit, the better interest, terms and conditions you should get.
  • Repayment can start as soon as the loan is disbursed. There are different repayment options (and sometimes deferment) while the student borrower is in school.
  • Repayment will be based on a fixed term–5, 10, 15, 20 or more years.
  • Loan default can sometimes occur after missing a single payment. This will impact your own credit.
  • The terms and conditions of the loans can be found on the loan documents, also known as promissory notes. Read them carefully to know about additional responsibilities.

What are some of my rights as a co-signer?

  • You are entitled to different disclosures when you apply for the loan, upon approval, and after approval. Read them. Read the fine print. The application disclosures will have whether the interest is fixed or variable, information about fees and default or late payment costs, an example of the total cost of the loan upon repayment, and much more.
  • To complete the loan, the lender will need a “self-certification form” that shows the cost of education and the student’s financial resources. Get a copy of this form. This may help you  have a conversation with the student borrower about the loan amount truly needed.
  • You have thirty calendar days after you receive the approval disclosures to accept the terms of the loan. Don’t rush a decision.
  • You can cancel the loan until midnight three days after the date of the final disclosure without penalty.
  • Private student loan lenders cannot impose prepayment penalties. This means you can pay in full or accelerate repayment without being penalized.

I want to help pay for a family member’s higher education, should I take out a private loan?

  • Private loans should be a last resort.
  • If you are a parent trying to help pay for undergraduate school, you may be able to obtain a Parent Plus loan, which is a federal loan that has more favorable terms and repayment options.
  • If your family member is being offered federal loans, it may be best for them to take them and you can help them pay those loans instead. Again, federal student loans may have a lower interest rate and will have more borrower protections.

What’s next?

Know before your sign. Know the terms and conditions of the loan and know whether you can assume responsibility for the loan in the event the student borrower cannot pay.  Don’t be afraid to have an honest conversation with the student borrower, even if it is family.  While they may have the intent to repay the loans, they may not be able to do so. Life happens and you will be fully responsible for the loans.

Read our “Managing Private Debt” self-help section. Since you are signing on a private student loan, that information may be helpful.