Should You Co-Sign on Someone’s Student Loans?

Unlike other forms of consumer debt, student loans receive special protections under current laws ranging from collection to bankruptcy. This special status applies not only to the primary borrower (the student) but also to any co-signer on the student loan.

Student loans are one of the hardest types of debt to shake. Current U.S. bankruptcy law allows a court to discharge student loans in bankruptcy only in the narrowest circumstances. In fact, the legal requirements for discharging education loans are so formidable to meet that most bankruptcy attorneys avoid student loan cases altogether.

Since so few student loan borrowers qualify for bankruptcy discharge under the law, the vast majority of student loan debt is carried until the borrower repays the loan or dies — although some non-federal student loans even survive death, passing the debt on to the borrower’s co-signer.

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Co-Signer Requirements of Student Loans

Most government-issued student loans don’t require a co-signer. Federal Stafford student loans and Perkins student loans are awarded to students without a credit check or co-signer. The one exception would be federal Grad PLUS loans, which are credit-based graduate student loans.

Federal PLUS loans for parents are also credit-based and may, in certain cases, require a co-signer for the parents to be able to take out the loan. However, the credit requirements for federal PLUS parent loans and for federal Grad PLUS student loans are much less stringent than the credit requirements for non-federal private student loans.

Private student loans are credit-based loans issued by private lenders or banks. Under current credit criteria, most students, who typically have little or no established credit history, will require a co-signer in order to qualify for a private student loan.

Typically, a co-signer is a relative who agrees to pay the balance of any co-signed student loans if the student fails to repay the loan, although a family relationship is not a requirement. A student may have an unrelated co-signer.

Federal Student Loans vs. Private Student Loans

Government-backed federal student loans come with certain payment-deferment and loan-forgiveness benefits. Borrowers who are having difficulty making their monthly student loan payments may be eligible for up to three years of payment deferment due to economic hardship, along with an additional three years of forbearance, during which interest continues to accrue, but no payments would be due.

For borrowers who are on the government’s income-based repayment plan, any outstanding federal college loans can be discharged prior to full repayment if the borrower has made her or his monthly student loan payments for 25 years. Borrowers who go to work for the government or the public sector can have their federal college loans forgiven after 10 years.