With the rising costs of higher education, more and more people are turning to student loans to finance their college educations. Often, however, such loans require students to get co-signers for their loans. What exactly is a cosigner, and why do banks want students to have them? Test your understanding of this topic with this quiz.
Why might a college student need a co-signer for a student loan?
Due to the student's short credit history or a poor credit rating, a bank will be less willing to take the risk of the loan without the student having a co-signer on the loan.
If a student defaults on a loan for which he has a co-signer, who may be subject to legal action?
If you have a co-signer on a loan, that does not mean it is not your loan. You are still responsible, but the co-signer must pay it if you can't.
What is an added benefit of having a co-signer on a student loan, even if you have good credit?
A second person who is also responsible for the loan makes it less risky for the bank. Thus they are willing to give the loan with a lower interest rate.
What type of student loans do not require co-signers?
Federal student loans also have lower interest rates and more favorable repayment schedules.
Who will a bank accept as a co-signer for a student loan?
A co-signer is required only for financial reasons. The bank doesn't care who the person is, as long as they are willing to accept responsibility for the loan.
When should you find a co-signer other than your parents for your student loan?
The whole point of getting a co-signer is to reduce the bank's risk on your loan, but if your parents have bad credit it could hurt, not help.
Other than the liability itself, why else might people be hesitant to co-sign your student loan?
With the added debt of your student loan, it will bring higher interest rates and lower borrowing potential.
What makes a default on a student loan worse than most other loan defaults?
Taxes, child support payments and student loans are all considered nondischargeable. Such debts remain valid even after bankruptcy.
How long does it take for a negative event to be removed from your credit report?
Luckily, bad credit is fixable. If you improve your credit over time, your rating will further be improved when the past negative events drop off.
What is special about a forbearance, as opposed to a delayed payment agreement on your loan?
In times of financial hardship, you may be able to negotiate either a delayed payment agreement or a forbearance with your lender.
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