Co-signers live with a low-lying fear. By co-signing, you become just as responsible for the student loan as the borrower is. Every month, you wonder if the borrower paid on time. Slow pay or defaults show up on your personal credit history and lower your credit score.
The lender will normally want to keep you on the loan until it’s paid off. That’s the lender’s protection. If the student borrower falls on hard times and can’t pay, the lender will come after you. You’ve promised to step in and make the all the missing monthly payments yourself.
Most lenders give you an out, however, when the borrower handles the debt responsibly.
Wells Fargo lets co-signers off the loan if the student makes the first 24 principal and interest payments on time, has a good credit history, earns a decent salary and appears likely to be able to repay the loan without help. (That first payment is critical. Borrowers sometimes forget it and start their loan repayments late.) The Chase Select loans require 36 consecutive repayments.
Sallie Mae will free a co-signer on its Smart Option student loan if the borrower made the first 12 principal and interest payments on time and meets similar credit score and responsibility tests. There’s one further requirement: The student has to have finished school. You normally can’t be removed from a Sallie Mae loan if the borrower failed to graduate. A spokesperson says that exceptions are sometimes made, but don’t count on it.
Co-signing is a big risk. Don’t do it unless you have the income and assets to repay the debt yourself.