Do I need a Co-Signer or Guarantor For An Education Loan

Do I need a Co-Signer or Guarantor For An Education Loan.Many students consider getting a college education to be a goal, but sometimes it’s so expensive that it becomes a barrier. Over the years education loans has become a common method through where students can acquire funds to finance their education, whether locally or internationally. One of the most common questions that students and their parents or guardians want to know the answer is whether the education loan requires a co-signer or guarantor.

Co-signer and guarantor may sound similar if you have been under the process of applying for the education loans; in this article, we’ll discuss what the two terms mean, why some education loans require co-signer and guarantor, and how the two actually differ, not forgetting about any possible options you may have.

What is an Education Loan?

An education loan is the form of an educational finance available from banks and other financial companies to the students to cater their education expenses. This loan usually can include tuition fees, living expenses or other necessary expenses including books, supplies and travel. Education loans are available in different forms provided by lenders there could be number of interest rate fees for repayment while some may take different times of repayment, and others may have different qualifications to offer education loans and these may vary in accordance to the country in which the student is residing.

Co-Signer and guarantor responsibilities and duties 2

To help you decide if you require a co-signer or guarantor, you must know their responsibilities first.

Co-Signer:

They are usually another individual who will be expected to repay the borrowed amount once co-signing is in the picture. In case the initial borrower defaults to pay the loan, the other borrower (co-signer) is legally responsible to make the payment. Co-signers are usually needed when a client has no background credit history or employment, which is typical with the student population.

Who can be a Co-Signer? At other times a co-signer could be a relative such as a parent or a guardian but this could be any other individual capable of paying an amount of money for the loan.

Why Lenders Need Co-Signer? Lenders demand co-signers in order to reduce risks of borrowers defaulting in their payments. They termed students especially those who lack income or credit history as high risk borrowers. This is so because a co-signer with a good credit reputation add to the security of the lenders.

Guarantor:

A guarantor is just a person who agrees to pay the loan on behalf of the borrower in the event that borrower fails to do so. However, unlike a co-signer, the guarantor is a legally liable entity for the loans issued only after the non-paying party has defaulted on the loan. From the onset, guarantors do not have the same liability on the loan as the borrower, but they are legally required to pay it back if the borrower cannot.

Who can be a Guarantor? A guarantor is also similar to a co-signor and is a totally unrelated person to the borrower; he is an independent third party, who may be a friend or a family member of that borrower or even an acquaintance and can also be financially sound.

Why Do Lenders Ask for a Guarantor?. A guarantor provides assurance to the lenders that the loan they are issuing will be pulled back either by the borrower or the guarantor whenever the borrower cannot meet the ticket on her or his own.

Do I need a Co-Signer or Guarantor For An Education Loan

Under what circumstances do you require a Co-Signer or Guarantor for an Education Loan?

Whether you need a co-signer or guarantor for your education loan depends on several factors, including:

1. The Lender’s Requirements:

It is pertinent to note that education loans have different policies drafted by different lenders and or institutions. While some will ask for a co-signer or guarantor depending on the amount of the loan, more flexible ones may do this away with when the student has a good credit standing or when the student has some form of security to offer.

Private Loans: The vast majority of private lenders will insist on a co-signer since students rarely have a credit profile, income, or good credit worthiness.

Government Loans: Most government-supported education loans do not necessitate a co-signer, in case these loans were to help create education for every individual. However, some government schemes may demand guarantor in some situations, that is, student education abroad loans etc.

2. The Amount of the Loan:

When the loan amount is high then, there are high chances that the borrower needs to get a co-signer or guarantor. Lenders have to be confident that some hefty amounts will be paid back, and this is where co-signer or guarantor comes into play.

3. Student’s Financial Standing:

In this case, the lender will not insist on a co-signer or guarantor if the student has a credit record, controlled part-time job earnings, or must provide acceptable assets for security. However, most students are not in such a position. Hence, co-signer/ guarantor is often required in most of the education loans.

4. Loan Without Collateral:

In case where there is no collateral the lenders demands for a co-signer or guarantor to sign for the loans. Collateral is actually security for the loan but where no security is offered, then the risk to the financier is higher. Consequently, while getting a co-signer or guarantor reduces that risk.

Co-Signer vs. Guarantor: Which One is Better?

The roles of a co-signer and a guarantor are similar, but there are key differences:

Liability: A co-signer is involved right from the time the deal is signed, while a guarantor’s liabilities begin the moment the borrower fails to make payments.
Impact on Credit Score: Because the loan is jointly applied for and used to guarantee repayment the credit record of the facility is visible on the credit score of both the borrower and the co-signer. For the guarantors the loan does not penetrate on their credit reports unless the borrower fails to pay the money as agreed.
For students the two are equally good but for the person who assumes the responsibility of a guarantor, the job may come easy since they are only answerable in case the borrower fails to pay. Nevertheless, depending on the nature of what is being exchanged, one party is exposed to certain risk, and both have to know their responsibilities.

Options Not to Use They Have Co-Signer or Guarantor

If you’re unable or unwilling to find a co-signer or guarantor, there are other options to consider:

1. Scholarships and Grants:

Scholarships and grants are usually the best means of financing education because they can be obtained without asking for a refund. Some scholarships are merit-based or need-based and anyone who applies to several of them can actually reduce the loan amount needed.

2. Collateral-Based Loans:

There are education loans which do not compel you to secure the help of a co-signer or guarantor instead you can offer property of fixed deposit. It minimises risk for the financiers and actual collateral based financing can even be cheaper compared to non-collateral based financing.

3. Government-Backed Loans:

Most countries in the world have government backed education loan facilities that one does not need a co-signer or guarantor. They range anywhere between short term non- secured loans with friendly features including lower interest rates and lenient payment options. For example, in India there are CSIS, such as the Central Sector Interest Subsidy which focuses on the credit interest free to economically weaker sections students.

4. Work-Study Programs:

It is equally important to note that in order to meet the cost of training, many universities encourage a system known as work-study whereby students are able to work and pay for their own training. These earnings can also minimize probabilities of borrowing money.

Conclusion: What is a Co-Signer/ Guarantor Required or Recommended?

On whether you will need a co-signer or guarantor for your education loan, this depends with the loan amount you require, your current financial status and the lenders terms. Even though the the presence of a co-signer or guarantor may help you get the loan, there is need to discuss and fully understand roles and characteristics to be complied with by both the borrower and the co-signer or guarantor.

Thus when considering the education loans one should seek scholarships, government approved loans and the loans that are given based on securities before looking at co-signers or guarantors.