Who is a Borrower?

A huge majority of students are strapped with student loans, yet only a handful truly grasp the nuances of the financial terminology associated with their loans. For example, who exactly is the borrower? Is it the student? Is it the student's parents? Let's explain so you fully understand your student loans.

Key takeaways

• Transferring schools doesn't mean your loans "transfer" with you
• Dropping out has financial consequences, including the start of your loan grace period
• Communicating with your loan servicer is essential to navigate potential challenges

Who is the borrower for a student loan?

In the context of student loans, the borrower can be either the student or the parent, depending on the type of loan. For federal student loans like Direct Subsidized and Unsubsidized Loans in the United States, the student is the borrower. Ultimately, the borrower is the party legally responsible for repaying the loan and may face different tax implications based on their role.

Federal student loans (United States)

1. Direct Subsidized and Unsubsidized Loans: The student is the borrower. These loans are made directly to the student, who is responsible for repaying the loan amount plus interest.
2. Direct PLUS Loans for graduate or professional students: Again, the student is the borrower. These are available for students attending graduate school and are not based on financial need.
3. Parent PLUS Loans: In this case, the parent is the borrower, not the student. Parents can borrow money to cover education expenses for a dependent undergraduate student. The parent is responsible for repaying the loan.

Private student loans

1. Student as borrower: Private student loans can be made directly to the student, who is responsible for repayment. However, given the student's limited credit history, many private loans require a cosigner.
2. Parent as borrower: Some private loan products are specifically designed for parents who wish to borrow on behalf of their children.

Other countries

The specifics can vary by country, but generally, the pattern holds: Student loans can either be borrowed by the student or the parents, depending on the terms and conditions of the loan product.

Additional considerations

• Cosigners: Even when the student is the primary borrower, many loans require a cosigner who is responsible for the loan if the student fails to make payments. The cosigner is often a parent but could be any adult with a good credit history.
• Legal responsibilities: Whoever is the borrower is legally responsible for repaying the loan. In cases where there's a cosigner, both parties are legally responsible.
• Tax implications: Depending on the jurisdiction, there might be tax advantages or disadvantages for the borrower and/or the cosigner, so it's advisable to consult a tax professional.

TuitionHero Tip

Understanding who the borrower is for a particular type of student loan is crucial for financial planning and understanding who bears the legal responsibility for repaying the loan.

Why trust TuitionHero

At TuitionHero, we simplify the complexities of student loans and college finances, guiding you through every step. As your ally in navigating private student loans, we also assist with refinancing, scholarships, and smart credit card choices. Our wide range of services aims to ease the overwhelming process of managing student loans. Let us help you create a tailored roadmap to financial success.

Frequently asked questions (FAQ)

Who is considered the borrower in the context of student loans?

The borrower of a student loan can either be the student or the parent, depending on the type of loan and the lending institution's terms. Federal loans like Direct Subsidized and Unsubsidized Loans in the United States typically make the student the borrower, while Parent PLUS Loans designate the parent as the borrower. Private student loans can also have variations, including students or parents as borrowers, depending on the specific loan product.

Are cosigners common for student loans?

Yes, many student loans, even when the primary borrower is the student, often require a cosigner. The cosigner takes on the legal responsibility for the loan if the student is unable to make payments. This is typically someone with a good credit history and is often a parent or a trusted adult.

What are the legal responsibilities of the borrower and cosigner?

The borrower is legally responsible for repaying the loan, while in cases where there is a cosigner, both parties share the legal responsibility for repayment. It's crucial to understand these legal obligations and responsibilities when taking out a student loan.

Are there tax implications for borrowers and cosigners?

Depending on your jurisdiction, there may be tax advantages or disadvantages for both the borrower and the cosigner. It's advisable to consult a tax professional to fully understand the tax implications related to your specific student loan.

Final thoughts

In summary, the borrower of a student loan can either be the student or the parent, depending on the type of loan and the terms set by the lending institution. Knowing your role is crucial for understanding who holds the legal and financial responsibility for repayment, as well as for planning any potential tax implications.