What are you on the hook for when you cosign a private student loan?

Summary

You are on the hook for the whole loan. The CFPB describes cosigners as equally responsible for and legally obligated to repay, so a missed payment lands on your credit report too, and a default can bring collectors or a lawsuit to you. Getting off the loan later depends on whether the contract offers cosigner release and whether the borrower qualifies, and when the CFPB looked at the industry in 2015, 90% of release applicants were turned down.

How the exposure shows up

Most private student loans have cosigners. By 2011, more than 90% of new private student loans were cosigned, often by a parent or grandparent, according to the CFPB. For the cosigner, the loan behaves like their own debt:

This is not a remote risk. The CFPB cites a 2019 AARP survey finding that a quarter of cosigners end up making at least one payment because the borrower failed to.

Cosigner release is a request, not a date on the calendar

Some loans let a cosigner off after the borrower makes a certain number of on-time payments and passes a credit check. The criteria live in the loan's terms and conditions and on the lender's or servicer's website. The CFPB warns that the servicer might not tell you when the borrower becomes eligible, so the borrower or cosigner has to ask.

Approval has historically been rare. In June 2015 the CFPB reported that among borrowers who applied for cosigner release at the lenders and servicers it surveyed, 90% were rejected. It also found companies that disqualified borrowers from release if they had accepted the servicer's offer of forbearance.

If the student or the cosigner dies

A federal law signed on May 24, 2018 (Public Law 115-174) added two protections for private education loans, now at 15 U.S.C. 1650(g). They apply to loan agreements entered into on or after November 20, 2018, 180 days after the law was signed.

When the holder of the loan is notified that the student borrower has died, it must release any cosigner within a reasonable timeframe. And a lender cannot declare a default or demand the full balance from the student on the sole basis of a cosigner's death or bankruptcy.

Older contracts are not covered. In 2014 the CFPB reported that many private student loan contracts let lenders demand the full balance when a cosigner died, or put the loan in default when a cosigner filed for bankruptcy, even with every payment on time. Nor is a private lender required by law to wipe out the loan if the student dies or becomes disabled. Whether that happens depends on the lender's own terms.

Refinancing the cosigner away

If release is denied, the borrower can take out a new loan alone and use it to pay off the cosigned one. The CFPB mentioned refinancing, along with finding a new cosigner, as the options a lender could give borrowers time to pursue. The new loan is underwritten on the borrower's own credit and income, which is where the article on refinance approval picks up, and the lender directory on this site lists each lender's published APR range.

Federal student loans do not use cosigners. The closest thing is the endorser a parent or graduate student with adverse credit can add to a PLUS loan, who agrees to repay if the borrower does not.

Sources

Written by Kaz (pen name). Figures are copied from the sources' published pages on the dates shown. We have not used these products. Corrections: contact form.