As a student loan cosigner, you’re jointly responsible with your student for making sure loans are paid back. Here’s what you need to know about grace periods, loan payments, and making sure you’re on the same page as your student.
What are you responsible for as a student loan cosigner?
When you cosigned your student’s loan, you became equally responsible for payments. That means that if the primary borrower (your student) doesn’t keep up with their payments for any reason, you’re the next person in line to be notified about it—and missed payments can negatively impact your credit report.
When do principal and interest loan payments start?
When your student leaves school, they’ll have a grace/separation period—often six months. This is meant to give them a chance to get settled after school before they start making principal and interest loan payments. (Principal is the amount you borrow; interest is the amount you’re charged for borrowing the money.) Your lender should send the payment due dates and amount to both you and your student several months before the first payment is due.
Even if you or your student have been making monthly in-school payments, these new principal and interest payments will generally be larger than their previous ones. The earlier students can incorporate loan payments into their budgets, the smoother the transition will be to paying off their loans going forward.
Can payment plans be changed?
Federal student loans have a variety of repayment plans that borrowers can apply for, like income-based, graduated repayment, or extended repayment options.
Private student loans (which are probably the type you cosigned for) generally don’t let borrowers change how they repay, so there’s less flexibility than with federal loans.
What can you do as a cosigner?
Money talks aren’t the easiest, but since you’re both responsible for the loan, it’s important to make sure your student understands your expectations:
- Do they understand loan repayment (including upcoming due dates and amounts)?
- Is it clear who’s going to make the payments?
- How’s their financial situation?
1. Does your student understand loan repayment?
With the emotions of leaving school and settling into post-school life, paying back loans may not be on your student’s to-do list—but it should be. This is the time to make sure they know about the payments, how much they’ll need to pay each month, and when the first payment is due.
You can also explain to them that on-time payments can help them start to build their credit—which will help them rent an apartment, buy a car, or get a new credit card.
2. Who’s going to make the payments?
There’s no one way that families decide this question. How America Pays for College 2022 found that 96% of families where the student borrowed expect the student to be at least somewhat involved in paying back the loans:
- 54% say the student is responsible
- 39% say parents and student will share the responsibility
- 5% say the parents will be responsible until the student’s financially stable
But perhaps the most important statistic was that 40% of families who borrowed discussed who’ll be responsible for paying back student loans. Have the conversation to make sure the responsibility is clearly understood by everyone.
3. How’s your student’s financial situation?
They may be anxious about their finances. While it can be hard to see your student struggling, there are some things you can do to help:
- Help them create a budget so that everything is accounted for.
- Consider helping them with payments for a certain amount of time (you may be able to deduct a portion of the interest on your taxes).
- Free up some money by helping with other expenses, like their cellphone or grocery bills.
- Encourage them to call their loan servicer (if they can’t make payments) to see if there are any options.
As a cosigner, you’re able to monitor their payments to make sure they’re made on time. Be ready to work with your student if you see warning signs.
Also, explore the lender’s cosigner release policy. Usually, after on-time payments are made for a specific amount of time, the borrower can apply to release you from all responsibility for the loan.
When you cosigned your student’s loan you made it possible for them to pursue their education. Now, the most important thing you can do is keep the lines of communication open as both of you transition to this new phase.