5 Things You Should Know Before Cosigning a Student Loan

5 Things You Should Know Before Cosigning a Student Loan

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With ever-increasing competition and soaring inflation, most parents who wish to send their children to study at prominent Indian universities are now opting to take out a student loan to further their children’s academic careers.

Earlier, most parents were accustomed to liquidating assets like gold, fixed deposits, and property to finance their child’s education. Parents or guardians have now begun to accept the paradigm shift of accessing funds through student loans for their children’s education.

This is because both students and parents/guardians are now aware of the many benefits that a student loan may provide. They understand that a student loan is preferable over a personal loan for education.

Student loans are easily available to a large number of students (and their parents/guardians) who are facing a financial crunch. That’s why there has been a steady growth in student loan demand in the country. 

According to a report by the credit bureau CRIF High Mark, disbursement of education loans increased by 9.25% between the year 2017 to 2018, and education loan companies, including banks, non-banking financial companies (NBFCs) and other financial institutions, disbursed Rs 11,000 crore loans during the year ending in September 2020.

This demand reached a new high during the pandemic, with more than 3 lakh new borrowers signing up for loans between March and October 2020. As of October that year, the outstanding education loans totalled Rs 1 lakh crore – the highest on record. 

If you are a parent or guardian and want to help your child pay for college by co-signing a loan from a bank or NBFC, here are some things you should know before making the decision:

5 things to know before cosigning a student loan

1. Cosigners don’t have to be parents

A cosigner is someone who “takes full responsibility for paying back a loan”. Often a cosigner is considered a family member, whether you’re a parent, guardian, grandparent, or spouse, the most important requirement is that you’re creditworthy and understand/accept your responsibilities. Only one person can cosign for a private student loan. For instance, if two parents are willing to be cosigners, only one will be able to do it.

2. Cosigner’s credit history is important

For most young people with a little credit history or low to no income, the only way they can get a student loan is with a cosigner. A lender looks at the borrower’s credit history to determine the level of risk. In the case of student loans, the lender would want to make sure the cosigner has the ability to pay it back.  They’ll look at your credit history, including the credit report and credit score, and other factors. Have you made payments on time? How much outstanding debt do you have? Have you had any bankruptcies or defaulted on a loan?

Also Read: 5 Best Tips To Get The Best Education Loan Interest Rate In India

3. Cosigner is legally responsible for the loan

Deciding to cosign a loan is an important decision. It’s a legally binding agreement that you’re willing to share the responsibility of repaying the loan on time and in full. So, missed payments can adversely impact your credit report as well as the borrower’s.

4. There are benefits to cosigning a loan

  • It helps you start to establish and build credit in your own name. Then, when it’s time to get a car loan, mortgage, or credit card, you’ll have a better chance of getting approved and receiving a lower rate.
  • It can help you develop good financial habits.
  • It gives you responsibility for your own debt.

5. It is for the child’s future

Cosigning for a loan allows your child (the student) to access funds that might otherwise be out of their reach. The loan can be a huge help to them and their academic future. Getting a good education is the first step toward a successful job. And, as a cosigner, you are helping the child get a good education.

Income is also an issue when signing up for a student loan. Most lenders require borrowers to show they have the income to reasonably afford repaying the loan. College student incomes rarely make the cut. Parents or guardians can help fill these gaps when they cosign a loan.

The job market is uncertain. Students may see higher interest rates as a result of this. That’s why before deciding on a lender, you should compare multiple loan offers. Many non-banking financial services companies offer lucrative easy repayment options with tenures longer than the course duration. 

Varthana student loans are designed to help you finance your child’s education and make that big leap. While providing the best education is a priority, only a few parents may be able to achieve this goal. In such cases, a Varthana student loan may be necessary. Whether you are planning to send your children to a small or reputed institute in India, a student loan from Varthana will help them finance their education with the least amount of difficulty.

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