How Is a Private Student Loan Reported on a Co-Signer's Credit?

Students rarely have much credit history, and private lenders are often not willing to risk lending to a borrower who could very well default on the student loan. The co-signer needs to have positive credit history and must agree to be held responsible for paying back up to the full balance of the loan, plus interest and fees. Because the co-signer's name is on the loan, the loan data appear on the co-signer's credit report.

All Data Reported

All of the data about the student loan appear both on the student's credit report and the co-signer's credit report. This is because the co-signer takes joint responsibility for repaying the loan. In fact, if the student walks away from the commitment, the co-signer could end up making all of the payments. For this reason, the student loan is reported on the co-signer's credit report just as if it were a loan the co-signer made individually.

Warning

Because the loan appears on the co-signer's credit report, this individual might see some damage to his credit score. For example, opening the loan will hurt the co-signer's credit score because it is a new account and it generates a credit inquiry. In addition, if the student misses a payment, this missed payment will show up on the co-signer's credit report and affect his account history. If the co-signer applies for a mortgage, the monthly payment on the student loan is factored into the co-signer's obligations when considering his debt-to-income ratio. Because of all these potential negative effects, individuals should carefully consider the implications before co-signing on a student loan.

Time Frame

Some student loans are removed from the co-signer's credit report after the student has made a certain number of payments on time. This number is usually somewhere between 12 and 36 consecutive monthly payments. The logic is that the student has proved himself to be responsible in managing the loan and therefore, the lender is willing to release the co-signer from the obligation. However, if the student misses payments or defaults on the loan, it will remain on the co-signer's credit report until it is fully paid off.

Alternatives

Co-signers who are worried about the negative effects of the private student loan should encourage the student to look into other types of funding for school. For example, the federal government offers Perkins loans and subsidized Stafford loans to students who are deemed to have financial need. All students can qualify for unsubsidized Stafford loans and graduate students can receive PLUS loans. Not only do these loans not require a co-signer, but they also generally have better interest rates than private student loans. Students should only look to private lenders after they have received all possible federal aid.