We all need a helping hand sometimes, and if you’re trying to take out student loans, that help can come from a cosigner. Cosigners are often a parent or other family member whose good credit and solid financial profile can help secure loan approval if a student borrower is unable to do so themselves. Once a student is on their feet and making their own loan payments, it’s possible in some cases to release a cosigner from their responsibilities.
In short: This is a high-level rundown of what the process of cosigner release can look like and what other options might exist if a cosigner release is not available. At SoFi, for example, you must reapply for the loan and see if you qualify on your own. But always chat with a trusted, licensed financial advisor before you make any big financial decision—including applying for a student loan with a cosigner.
What Is a Cosigner?
Applying for financial aid typically begins with the Free Application for Federal Student Aid (FAFSA®) and Direct Subsidized and Unsubsidized federal loans, which don’t need a cosigner. If you’re unable to get a student loan yourself, a cosigner—often a parent or close family friend or relative—may be able to help secure funding, and often at a more reasonable interest rate than you’d be able to get on your own.
Think carefully when picking a cosigner, and understand the obligations and risks that go along with having someone cosign a loan with you. If you aren’t sure what path to take, a school counselor or the college financial aid office might be able to help.
First, cosigners are as responsible as the principal borrower to repay the loan. That means if the principal borrower doesn’t make a payment on time, the cosigner is legally required to make the payment.
Also, late or missed payments can affect both the principal borrower’s and the cosigner’s credit history.
Finally, if a debt goes into default and the lender hires a collection agency, that agency can pursue the cosigner to collect the debt.
Cosigners may decide that these risks are worth taking on to help a child or family member get through college, but cosigning can also cause stress and affect the cosigner’s credit since the loan shows up on the cosigner’s credit report . On the plus side, having a cosigner could be beneficial to the student by helping them build a credit history.
What Is a Cosigner Release?
In some cases, the cosigner can be removed from the loan with a cosigner release after the student has graduated and met certain requirements, such as 12 on-time payments. Once the cosigner is released, they are no longer responsible for the student’s debt if the student is unable to repay it.
How Does the Release Work?
Before a lender will release a cosigner, principal borrowers typically have to demonstrate that they are able to handle the loan on their own by meeting certain minimum requirements , which can vary by lender. For example, the release might not be available to a student’s consigner until that student has graduated from college and established a steady income. Cosigner release requirements may include:
Minimum full monthly payments: Typically a student will have to show that they’ve made one to two years’ worth of full monthly payments, depending on the lender. Full payments include principal and interest rate payments, and they must be on time.
Good credit: The lender will check the student’s credit to make sure the student can qualify for the loan on their own and meet minimum credit requirements. For example, they’ll be looking to make sure that the borrower doesn’t have any loans in default and that they have a good consumer credit report.
Employment: Lenders may ask for proof of employment and determine whether a student is meeting minimum income requirements. Borrowers may be asked to prove income with recent paystubs, W-2s, or the borrower’s most recent tax return.
Depending on your lender, there may be other criteria you have to meet. Once you have submitted an application with the information your lender requires, the lender might then issue a cosigner release.
Why Get a Cosigner Release?
A cosigner might want to be released from a student loan for a number of reasons, not the least of which is the flexibility they may gain from having that portion of their credit freed up.
First, their debt-to-income ratio will likely improve, which may make it easier to apply for new credit or get a new loan at a favorable interest rate. So if a cosigner is looking to buy a car or get a mortgage, for example—or even cosign another loan—they may be able to do so with more favorable rates.
Cosigners with other children bound for college may want to be released from one child’s loan so they can turn their attention to funding their next child’s education.
Also, the cosigner would no longer have to worry that their credit will be damaged if loan payments aren’t made on time, or that they may be on the hook for a surprise payment should their student borrower drop the ball.
What Are the Limitations of Cosigner Releases?
Not all loans offer the possibility of a cosigner release. And even for those that do, it can be difficult to obtain. For that reason, when you are on the hunt for an initial loan, you might look for those that advertise a cosigner release option. That way, you’ll know the possibility is there. If your application for a release is rejected, there are other ways you may be able to relieve your cosigner.
What Are the Alternatives to a Cosigner Release?
One alternative that might be worth considering is refinancing your student loan(s).
When you refinance student loans, your new lender pays off your old loan (or loans) in full, replacing it with a new one. If the principal borrower can qualify for a new loan on their own, the new lender can pay off the cosigned loan, leaving the cosigner free of the debt.
If you do decide to go this route, it’s worth spending a little bit of time shopping around for a lender that can help you manage your student loan debt better. For example, you could look for a lender that offers you lower interest rates, since this can save you money in the long run.
You would still need to apply for this type of loan as you would any other, demonstrating that you are capable of paying the debt off yourself. You’ll likely need to prove that you have a history of making on-time student loan payments, too. Lenders might look at your consumer credit report, debt-to-income ratio, and income—among other factors that will vary from lender to lender.
If you do qualify for a refinanced loan on your own, then only your name will be on the new loan. At this point, your cosigner would no longer be responsible should you miss payments or default. Though the responsibility for repaying the loan will fall entirely on you now, release from the old cosigned loan can be a big weight lifted off your cosigner’s shoulders.
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