There are many differences between federally funded student loans and privately funded students loans, and one of the main differences begins with the qualification process. Unlike federal student loans, those applying for private loans don’t need to complete the Free Application for Federal Student Aid which takes financial need into consideration.
Rather, private loans eligibility is based on the credit score of the borrower. Because of this, it is often a good idea for students trying to obtain a loan to have a co-signer. A co-signer is someone who also enters into the loan serving as a guarantee that they will be responsible for its repayment if the borrower fails to do so. Lenders take both the borrower and co-signer’s credit scores into account when deciding whether or not to issue a loan.
For many students who don’t have a credit score, having a parent or relative act as co-signer is the best, sometimes only, way to receive a loan, and will almost assuredly get the borrower a lower interest rate since it’s based on whomever’s credit score is the highest.
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