Private student loan companies will give students any amount of money, it seems. But the access to capital is still mostly tied to the ability of a borrower to find someone who is willing to sign on their behalf to certify that they believe the person can make payments. Luckily, borrowers do have a few avenues for accessing loan money without a cosigner.
Private Student Loans
Student loan companies are rewarded heavily with government privilege. For one, student loans cannot be discharged in bankruptcy, and must be repaid. If you cannot pay, the government can and does decide frequently to take away future loans, and can even garnish your wages to ensure that the lender gets their money back for student loan debt.
Even with this benefit, though, borrowers are still required to have a cosigner to get any significant loans from a student loan lender. However, there are a few exceptions to this rule:
1) Students with income – Showing an income is the quickest way to be accepted for a student loan. Borrowers who have their own income—the amounts vary by lender—are more likely to be able to borrow without a cosigner, since they can prove already that they have sufficient money to be able to repay any debt. Also, lenders see a student with a job to be more responsible, and more likely to know the financial responsibilities that a loan entails. In general, earnings of $19,000 per year are enough to qualify for loans without a consigner, though few students reach this threshold.
2) Excellent credit – Just like loans made through traditional channels, a borrower who seeks out capital from a bank with excellent credit is likely to qualify for the best rates, terms, and do so without a cosigner. To be approved, you’ll need a credit score of 650 or better, and many banks provide students with loans without a cosigner if they have a credit rating of 700 or above. To do this fresh out of highschool is difficult, as one of the most important elements of a credit score is the length of history, but the best way to build a credit score is to start immediately. Open a small credit card and only one credit card for infrequent use, and pay it off each time you get the bill. You’ll show the banks that you’re more than capable of handling a loan.
3) Borrow only the minimum – Never borrow more than you might need to if you plan to go without a cosigner. If the student loan company sees that your cost of attendance is $10,000 per year, and you’re seeking $20,000 per year in loans, then you’ll be flagged immediately as someone who needs a cosigner before approval. Instead, seek out a loan only for the difference in your true costs and your current aid package to minimize the possibility that the student loan company asks for a cosigner.
Getting Consigners Released
Beating the cosigner requirement doesn’t have to be done immediately. In fact, most lenders who request a consigner for a college loan will allow borrowers to release their cosigners after two years of on time payments. Sallie Mae and Wells Fargo are two banks that offer this option to borrowers.
Releasing your cosigner from the loan means that he or she is no longer responsible to make payments on the loan if you can’t pay. Ideally, you’d structure the loan so that you are guaranteed to be able to make back the payments on time. A great way to do this is to borrow enough money so that you can set aside enough cash in a separate account to make sufficient minimum payments. That way, your cosigner doesn’t have to worry about having their credit affected by your ability to pay, and it is guaranteed that enough payments have been made on time to release your cosigner from the loan. In most cases, cosigners can be released only after graduation of the student, or 2 years of payment history.