If you borrow a student loan with a cosigner, you may want to officially remove them from the loan by applying for a cosigner release. The specific requirements for this can vary by lender but may include things like a minimum number of on-time monthly payments and a review of your credit history.
Borrowers will likely be required to file a formal application with their lender in order to release their cosigner from a student loan. Continue reading for 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.
Key Points
• What Is a Cosigner Release? Allows the cosigner to be officially removed from a student loan if certain conditions are met.
• Eligibility Requirements May include a minimum number of on-time payments, proof of stable income, and a good credit history.
• Application Process Borrowers must submit a formal request to the lender, often requiring documentation like tax returns or pay stubs.
• Benefits for Cosigners Improves their credit profile, reduces financial liability, and removes risks like automatic default if they pass away.
• Alternative to Cosigner Release Refinancing the loan in the borrower’s name only can remove the cosigner while potentially lowering interest rates.
What Is a Cosigner?
The financial aid process typically begins with families filling out the Free Application for Federal Student Aid (FAFSA®) to see how much aid they’ll receive . Direct Subsidized and Unsubsidized federal loans don’t need a cosigner, but they don’t always cover the whole cost of your education. If you’re unable to get a student loan yourself, a cosigner — often a parent, relative, or close family friend — may be able to help secure funding.
Cosigners are just as responsible as the primary borrower to repay the loan. If the primary borrower doesn’t make a payment on time, the cosigner is legally required to make the payment. Late or missed payments can affect the credit score of both the primary borrower and the cosigner. 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 choose to help their child or family member take out a loan when they are in college, but once the student graduates and gets a job, they may decide it’s time for them to take full responsibility for the loan.
💡 Quick Tip: Get flexible terms and competitive rates when you refinance your student loan with SoFi.
What Is a Cosigner Release, and How Do You Qualify?
A cosigner release is the process of removing a cosigner from a loan. Depending on the loan’s terms, the cosigner may be removed from the loan with a cosigner release after the student has graduated and met certain requirements as outlined by the lender. Here’s a list of the typical requirements that a primary borrower must have in order to remove a cosigner from their loan:
1. Minimum full monthly payments:
Typically, the primary borrower 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 made on time.
2. Satisfactory credit:
The lender will generally check the primary borrower’s credit to make sure they 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.
3. Employment:
Lenders may ask for proof of employment and determine whether a primary borrower 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.
How to Apply for Cosigner Release
Before a lender will release a cosigner, primary borrowers must submit an application. Here is a step-by-step guide to applying for a cosigner release.
1. Check with Your Lender
First things first, if you’re unsure if the loan you have qualifies for a cosigner release, check in directly with your lender. Generally, lenders will have certain requirements that borrowers are required to meet before they can apply for a cosigner release. These may include things like making a minimum number of on-time monthly payments, establishing a strong credit history, and securing employment. Again, each lender is able to set their own criteria.
2. File an application
Once you’re confident you can meet the requirements, you will likely have to file a formal application with your lender to have the cosigner removed from your loan. Depending on the lender, you may be able to submit the application online or by mailing in a printed form. Read the application requirements thoroughly because some lenders may require supporting documentation, like a W-2 or recent pay stubs.
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 may 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. 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.
Another reason to consider releasing a cosigner is that some private loans go into automatic default if the cosigner dies. Removing the cosigner protects the primary borrower from needing to worry that they may have to pay any remaining balance in full immediately if their cosigner dies.
Once the cosigner is released from the loan, they will no longer have to worry that their credit will be damaged if loan payments aren’t made on time, or that they may be responsible for payments should the primary borrower drop the ball.
💡 Quick Tip: Refinancing could be a great choice for working graduates who have higher-interest graduate PLUS loans, Direct Unsubsidized Loans, and/or private loans.
What Are the Limitations of Cosigner Releases?
Not all loans offer 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 should read the fine print to see if the loan offers a cosigner release option. That way, you’ll know the possibility is there.
What Are the Alternatives to a Cosigner Release?
If your application for a release is rejected, there are other ways you may be able to relieve your cosigner.
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 primary borrower can qualify for a new loan on their own, they won’t need to include the cosigner on the new loan.
If you do decide to go the refinance 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 could cut your interest costs over the life of the loan and may save you money.
You will 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. Then, your cosigner will no longer be responsible should you miss payments or default. Though the responsibility for repaying the loan will fall entirely on you now, being released from the old cosigned loan can be a big weight lifted off your cosigner’s shoulders.
The Takeaway
Applying for a cosigner release may require that the primary borrower meet certain lender requirements like having a full-time job and making a minimum number of on-time monthly payments. If approved, the cosigner on the loan will be officially removed and the primary borrower will be the sole borrower.
In the event that you aren’t approved for a cosigner release, you may be able to remove your cosigner by refinancing your loan. This entails applying for a new loan, potentially with a new lender. Refinancing won’t be the right choice for every borrower, and if you have federal student loans, you will forfeit any federal borrower protections, like income-based repayment plans, if you refinance them with a private lender. (Federal loans also don’t require a cosigner.) If you think refinancing might be a fit for your personal financial situation, consider SoFi. Refinancing at SoFi can be done entirely online and there are absolutely no hidden fees.
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