Credit Rating

• When you cosign a loan, you make the same commitment to repay the loan that the student makes. The loan appears on your credit report as your debt, and any delinquent payments affect your credit score. Cosigning a loan gives the lender two individuals from whom to collect the unpaid balance: the student and you. If the student doesn't repay the loan on time, the lender may take collection action against you.
  
  

Interest Rates

• As of the time of publication, the highest federal student loan rate allowed was 6.8 percent. Private loans carry an average interest rate of 11 to 12 percent. Private lenders base interest rates on a borrower's credit score. The lender often does not disclose the amount of variable interest it will charge until a student and you, the cosigner, sign a promissory note for a loan.
  
  

Flexibility

• Federal student loans offer flexible repayment plans. Payments aren't due until the student graduates from college, and repayment can be extended through programs such as forbearance, deferral and consolidation. Many private lenders either do not offer these options or only offer flexible repayment terms to borrowers with a high credit score. If a student can't repay a private student loan, he has few options except to ask the cosigner to make payments.
  
  

Bankruptcy

• In at least one respect, federal student loans are similar to private student loans: neither you nor the student for whom you cosign can discharge a federal student loan or a private student loan in bankruptcy. Prior to 2005, private student loans were subject to state statutes of limitations. However, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 changed the bankruptcy law to make private student loans exempt from discharge in bankruptcy court. If you cosign for a student loan, you cannot get out of your obligation by declaring bankruptcy.
  
  

Statute of Limitations

• The statute of limitations sets a time during which a lender must sue a borrower to recover unpaid debt. Private student loans are subject to statutes of limitations, which vary from state to state. The loans may contain a "choice of law" clause that specifies that the laws -- including the statute of limitation -- of a certain state govern the loan. The time limit on most loans is six years, and the clock begins to run when the last payment owed on the loan is past due.