The trend of cosigning loans—in which parents or other adult borrowers sign onto the loan along with students to help them get approved or to get a lower interest rate—came under fire in a report released Thursday by the Consumer Financial Protection Bureau.
One issue: Cosigners could find it harder to get access to other forms of credit for themselves or could end up with higher interest rates on their future borrowing, the CFPB says.
Exacerbating the problem: It is typically very difficult to get a cosigner removed from a private student loan. Private lenders are rejecting 90% of consumers who apply to have a cosigner removed from their loans, according to the report, and lenders provide little information to borrowers about how their cosigners can get removed.
The use of cosigners has increased in recent years as private student lenders have tightened underwriting requirements and seek to ensure repayment. Some 94% of the undergraduate private student-loan dollars given out during the first three quarters of the 2014-15 school year were cosigned—the highest on record—up from 77% in 2008-09, according to MeasureOne, a San Francisco-based firm that tracks student loans.
Source: Cosigning Student Loans Can Be Risky – Total Return – WSJ