If you borrow a student loan with a cosigner, you may be interested in officially removing 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 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.
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.
Cosigners are just 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. Late or missed payments can affect both the principal borrower’s and the cosigner’s credit history. 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?
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. These requirements may include things like a minimum payment requirement. 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.
Satisfactory credit: The lender will generally 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.
How to Apply for Cosigner Release
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.
After these requirements have been met, the borrower will likely have to file a formal application with their lender to have the cosigner removed from their 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 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 responsible for payments 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 could cut your interest costs over the life of the loan.
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.
The Takeaway
Applying for a cosigner release may require that the primary borrower meet certain lender requirements like having graduated from college 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. It’s worth mentioning that refinancing won’t be the right fit for every borrower, and if you have federal student loans, refinancing would eliminate them from federal borrower protections. If you think refinancing might be a fit for your personal financial situation, consider SoFi. Refinancing at SoFi can be completed entirely online and there are absolutely no hidden fees.
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If you are looking to refinance federal student loans, please be aware that the White House has announced up to $20,000 of student loan forgiveness for Pell Grant recipients and $10,000 for qualifying borrowers whose student loans are federally held. Additionally, the federal student loan payment pause and interest holiday has been extended beyond December 31, 2022. Please carefully consider these changes before refinancing federally held loans with SoFi, since the amount or portion of your federal student debt that you refinance will no longer qualify for the federal loan payment suspension, interest waiver, or any other current or future benefits applicable to federal loans. If you qualify for federal student loan forgiveness and still wish to refinance, leave unrefinanced the amount you expect to be forgiven to receive your federal benefit.
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Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
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