How to Get a Student Loan Without a Cosigner

Last Updated: October 18, 2021 by Melanie Hanson

Borrowing with a co-signer is not unlike a marriage; both parties are locked into a contract with one another, and it’s usually not easy to dissolve that contract. Under certain circumstances, it may be easier to divorce your spouse than to release your co-signer; without a co-signer release clause, you have to qualify for student loan refinancing in order to remove a co-signer from your student loan debt.

Furthermore, if you, the borrower, miss a student loan payment, it damages your credit report and your co-signer’s credit. Furthermore, in the event that both you and your co-signer are unable (or unwilling) to make payments toward your loan debt, you both may be subject to legal action.

In addition to financial consequences, co-signer relationships can invite interpersonal problems. Money woes are infamously the most-cited reason for divorce.[1]

Borrow Without a Co-Signer in 4 Steps
Exhaust other funds Submit the Free Application for Federal Student Aid (FAFSA) and use every federal loan available to you.
Consider alternative loans Weigh all of your options, including personal loans and lines of credit.
Use alternative lenders The financial industry is diverse with lenders that use different guidelines to judge creditworthiness.
Build credit Pay bills in full and on time. Learn the difference between “good debt” and “bad debt.”

Exhaust Other Funds

The first step when pursuing student loans without a co-signer is to reevaluate financial resources and ensure you’ve exhausted all other funds.

There is enough scholarship and grant money available to give $9,744 to every full-time student. In recent years, students have left billions of dollars in federal student grants unused and unclaimed. These are funds that, once awarded, don’t have to be repaid. Do your research and use all the resources available to you.

Types of Grants & Scholarships Available
Need-Based Publicly-funded grants and scholarships are often reserved for students with the greatest financial need.
Merit-Based Most grants and scholarships have some merit requirement for which the student must demonstrate they have earned .
Course-Specific Students may win grants based on exceptional performance in one or more areas, such as engineering or performance art, while not necessarily pursuing a degree in these fields.
Career-Specific Grants based on career goals generally go to students who excel in their specific area of concentration
Demographic-Specific Some grants and scholarships are designed to level-out socioeconomic disparities that hinder student progress among underrepresented groups.

Grants & Scholarships

In addition to billions in federal, state, and local grant dollars that go unused, an unknown amount of private grants and scholarships are presumably underutilized, as well.

Some federal grants, such as Pell Grants, are widely available; there are also grants available to specific groups, such as students from minority demographics.

Each state has its own scholarship programs, both for state residents as well as for students who attend school in the state.

There may also be local scholarships in your area sponsored by city or county initiatives to grow an educated local population. These types of scholarships are typically only good for community colleges or area technical schools.

Over half of all postsecondary students receive private grants or scholarships. Private scholarships are typically not need-based may include those from the academic institutions and membership organizations; these programs may be need-based, merit-based, career- or course-specific, minority student, or a combination of these.

100% Stacked Bar Graph: Private Student Loans: Co-Signed vs. Independent Borrower, undergraduate (90.6% vs. 9.4%) and graduate students (62.9% vs. 37.1%)

Federal Loans

Most federal loans require no credit check; your loan approval is based on need instead of your ability to repay the debt.

Nearly one-third of students use federal loans to pay for school. Some borrowers report struggling to repay their loans, and student debt statistics indicate that average debts continue to grow faster than the rate of currency inflation.

In other words, these loans come with significant financial risks. Borrowers don’t always consider the weight of these risks, due in part to the fact that federal loan debt is so common among college graduates.

Consider Alternative Loans

There are many different types of loans, and they all have different eligibility requirements. For example, it’s not uncommon for homeowners to use a mortgage or home equity loan for education expenses, essentially putting their property up as collateral. Financial experts call this type of loan “bad” debt.

Credit cards are also considered bad debt. Students often use credit cards, which are widely available, to make daily living purchases. If used with strategic efficiency, credit cards can be effective financial tools to build credit history and even save money.

Friends & Family Loans

Also common among students are informal loans from friends and family, usually parents. Such loans may be preferable to a co-signature because although they come with similar personal risks, friends/family loans have no impact on anyone’s credit score. Furthermore, there are no eligibility requirements, underwriters, or fees. Your friends or family may even agree to an interest-free loan.

Note that these loans can still lead to legal action. A friend or family member may be able to file a civil lawsuit claiming breach of contract. Such an outcome is more likely with a verbal or informal contract due to miscommunication. With these opportunities for interpersonal conflict, some borrowers may not consider the potential savings from these types of loans worth the risks.

The virtue of a personal loan is unique to each individual; only you can make an informed value judgment and decide if the benefits outweigh the risks.

Lines of Credit

A line of credit is an open-ended loan with a predetermined credit limit. Credit cards are revolving lines of credit that allow consumers to draw as much as they want, as often as they want, from a fixed amount of funds, at which point the card is “maxed out.”

First Republic Bank discontinued its student loan refinancing program and began promoting its personal line of credit as the preferred alternative. As with a credit card, borrowers can use this line of credit to pay for various types of debts or purchases. A borrower with First Republic may use a personal line of credit to pay off their educational debts, including those that student loans don’t usually cover, such as off-campus housing and groceries.

A personal line of credit like this is an unsecured loan, meaning the borrower does not need to use collateral. Loans with collateral are secured lines of credit.

Loans With Collateral

As a rule, these are not good loans to use to pay for your education. These types of loans are designed to be short-term, emergency debt solutions; they are high-risk and typically considered bad debt.

Some students or their parents use home equity loans, for example, to pay for school; this type of loan uses a property as collateral. Though obtaining a home equity loan can be a good financial decision, it’s best used to increase the value of your property via upgrades and renovations. Borrowing without a co-signer may be preferable.

A title loan has the title of a motor vehicle as collateral. If you can’t repay the loan, the lender assumes ownership of the vehicle. Because these loans are supposed to be used for a short period, lenders charge high APRs; failure to repay them immediately could cost as much interest as the loan itself is worth.

Title loans, payday loans, and similarly short-term debts do not look good on a credit report. These loans primarily serve people who lack the savings to pay a critical bill. Lenders who see such loans on your credit report may assume you have poor money management skills and won’t necessarily give you the opportunity to explain your need for the loan.

Use Alternative Lenders

Some lenders use qualifications other than credit history or credit score to evaluate potential borrowers. Such alternative qualifications are gaining popularity in the financial technology or “fintech” industry.

If you graduated in the last two years, you might be able to use your academic performance as a point of qualification. A high grade point average indicates you can be a responsible borrower even if you’re still gaining financial experience.

Many lenders already use your debt-to-income (DTI) ratio to determine eligibility. This ratio is a practical way to determine your ability to repay a loan because it measures your debt payments against your income. Usually, eligibility requirements include a DTI limit of 43%.

While current salary is important, your potential income can also improve your loan eligibility. You may be at the beginning of your career now, but your income will grow as you advance.

Some industries pay very little to low-level employees while a high salary is typical for established professionals. Lenders may estimate your income growth potential and creditworthiness based on your professional industry.

Similarly, high education attainment is in your favor. Advanced and multiple degrees, certifications, and continued education may all serve to boost your creditworthiness.

Bar Graph: Debt-to-Income Ratio Sample Scale, how lenders see creditworthiness for student loans with no co-signer

Build Credit

People usually use a co-signer to compensate for their credit history. This only works, however, if your co-signer has better credit than you do, and credit scores are subject to change.

Building your own credit is important. In fact, there are credit-builder loans specifically designed to help people with poor credit improve their FICO score.

In building your own credit, you’ll also avoid damaging a co-signer’s credit should you miss a payment. When you use a co-signer, any activity on the loan account is reflected in the co-signer’s credit report. If you somehow fall behind on payments, the co-signer’s credit score declines. Such things can damage personal relationships in addition to financial health.

Sources

  1. Advance Local, The #1 Reason for Divorce?
  2. The People’s Law Library of Maryland, Cosigning a Loan: Risks and Benefits
  3. LendingTree, 17 Types of Loans, From Personal Loans to Mortgages and More
  4. MeasureOne, Private Student Loan Report 2021