In a NutshellWhen it comes time to get a loan for school, you may have little or no credit history to back up your financing needs. While most federal student loans don’t require you to have good credit or a co-signer, other options — like private student loans or personal loans — might. Here are some things to know about co-signers and student loans.
For many people, federal student loans are the easiest way to borrow money for school.
That’s because most federal student loans don’t require a credit check or a co-signer, so getting approved can be a breeze compared to private loans.
Federal student loans also offer flexible plans that can give you more time to repay what you borrow, and they usually have much lower interest rates than like private loans. If you can get federal student loans to cover all your educational expenses, you probably won’t need a co-signer to help you finance your education.
But if federal loans still leave you short of cash, you might consider a private student loan or personal loan. And for those, you’ll likely need to have good credit of your own — or a co-signer who does.
Let’s take a closer look at different types of loans for school, and which ones might require a co-signer.
Student loan debt in the U.S.
It’s no secret that college can be expensive. For the 2017-2018 academic year, tuition, fees, and room and board averaged $20,770 at a public four-year, in-state college, and $46,950 for a private, nonprofit four-year school, according to the College Board.
Given those high costs, it’s no wonder that many students need loans, maybe even part-time jobs and any help they can get from family. In fact, most college students in 2012 graduated with student loan debt, according to the Institute for College Access and Success. Average student loan debt levels for the class of 2016 varied by state, from a low of $19,975 in Utah to a high of $36,367 in New Hampshire, the organization said in a 2017 report.
As college costs have gone up, so has total student loan debt in the U.S. In the first quarter of 2018, the total student loan debt in the U.S. hit a record $1.5 trillion, according to the Federal Reserve.
Types of student loans
Student loans come in two types: federal and private. Federal loans are backed by the federal government. Private loans from banks and other commercial lenders typically don’t have federal government backing.
Federal loans usually have a lower interest rate, more flexible repayment options and may even offer a grace period before you have to start to repay the loan. Grace periods vary, but depending on your loan, you can get six payment-free months after you graduate, leave school or reduce your enrollment to less than half of a full-time schedule. But remember, on most federal loans interest will accrue during the grace period.
For most students, it’s usually better to get as much help as possible from federal financial aid and federal student loans as well as any grants, scholarships or work-study funds before considering private loans. But once those sources have been tapped out, private loans may help bridge the gap between your college costs and your financial means.
Student loans can be used to pay education-related expenses such as tuition, school fees, housing expenses, transportation costs, meals, textbooks and school supplies, among other things.
Getting a personal loan for school without a co-signer
Federal student loans should always be your first choice for funding your education. However, if you’ve exhausted your federal student loan options and feel you need to supplement your financing with some private borrowing, you might consider a personal loan — which may or may not be possible without a co-signer.
Personal loan basics
A personal loan is an installment loan. That means you borrow a specific amount, and you’ll need to pay it back with interest in regular monthly payments over the loan term — a set number of months or years — to repay the debt. Personal loan interest rates may be fixed or variable.
Personal loans can be used for financial emergencies, debt consolidation, home improvement, education costs and student education and living expenses, among other things. You can apply for a personal loan while you’re in school or after you graduate or leave school.
You may not need a co-signer if …
You have good credit. Most lenders will check your credit scores and reports when you apply for a personal loan. If you have higher scores, you may be able to get a lower interest rate and could be approved without a co-signer. If your credit scores are lower or you haven’t established a credit history, you’ll usually need a co-signer.
You can secure your loan. Personal loans can be secured or unsecured. If your credit isn’t the greatest but you still want to try for a personal loan without a co-signer, consider a secured loan. To get a secured loan, you’ll need to have some sort of asset — such as a savings account or certificate of deposit — known as collateral. The lender can typically claim the collateral as payment for the loan if you can’t repay the loan. Securing a personal loan with collateral could lower your interest rate and help you avoid the need for a co-signer.
Keep in mind that unsecured personal loans may have higher interest rates than secured personal loans since there isn’t any collateral backing the loan if you don’t repay. If you’re shopping around for a lower rate on an unsecured personal loan, having a co-signer could help.
If you need help paying for school — and most students do — first take a look at federal financial aid, including federal loans. Once you’ve maxed out your federal aid and federal loan options, you might consider private student loans or personal loans.
But before you take out any loans for school, consider the debt you’d be getting into — and think about your future. Check out salaries for jobs you’re interested in pursuing with your degree. Will you earn enough to repay your student loans?
And once you have student loans, keep track of them. Know when you’ll have to begin repaying them and make sure you make payments on time and in full. If you find yourself struggling with your student loans, you can contact your loan servicer to ask about repayment options.