Student loans are often necessary to meet the cost of education, but for young students, they typically haven’t had a chance to establish an adequate credit history to be approved for a loan. Bank of North Dakota’s (BND) student loan often requires a cosigner who promises to repay the loan if the borrower does not.
These FOUR things are what every cosigner should know before they sign the promissory note:
It can affect their credit.
A person’s willingness to be a cosigner helps the student get the loan. Ideally, the person you cosign for is dependable, never late and makes the required payments. But just in case that doesn’t happen, know that the loan actually appears on both credit reports – the borrower and the cosigner – even if the loan is not past due. For both, it is considered a debt owed which could impact a cosigner’s ability to qualify for other lines of credit. If the loan becomes past due, it could also lead to collection accounts and damage the cosigner’s credit history.
Student loans are not typically discharged through bankruptcy.
Student loan debt is treated differently in bankruptcy proceedings with additional actions needed to be considered for discharge. “Undue hardship” meaning significant or excessive difficulty must be proven in all cases. In reference to federal student loans, a separate action must be taken.
It can bring tension to relationships.
If the borrower is unable or unwilling to repay the loan, the cosigner is responsible. When the cosigner is a family member or friend, it could place a financial burden on them.
Cosigner release or replacement options may exist.
Depending on the lender, a borrower may be able to request to release a cosigner from the loan or have another person replace them as cosigner if it’s needed. Bank of North Dakota offers both of these options when criteria are met.
The decision to cosign a private student loan isn’t one to take lightly. If you decide to help a borrower out with cosigning their loan, be informed and ask questions. It can help you and borrower in the long haul.
More information on cosigning Bank of North Dakota student loans is available on the BND website.