Refinancing Student Debt With a Cosigner

If you’re interested in refinancing your student loans, but you don’t think your credit history is strong enough, there are options that might help. One is to refinance student loans with a cosigner.

A cosigner may help you qualify for a refinanced loan. But is taking out a new loan with a cosigner the right choice for you? There are pros and cons to carefully consider in order to decide if student loan refinance with a cosigner makes sense for your personal situation.

What Is a Cosigner on a Loan?

A student loan cosigner is someone who legally agrees to pay your debt, such as your student loan debt, in the event that you can’t make the payments yourself. The exact terms will vary based on the loan type and lender, but in general, this person signs your loan with you and accepts responsibility for your loan if you are unable to pay your debt.

Responsibilities of a Cosigner

A cosigner on a student loan refinance agrees to take on equal responsibility for repaying the loan. Any late or missed payments or student loan default by the borrower could harm the cosigner’s credit.

How Cosigners Affect Loan Approval

When a borrower adds a creditworthy cosigner to their loan application, it may help approve their chances of qualifying for the loan and securing a lower interest rate if the cosigner has a strong credit and financial history.

Can a Cosigner Help You Refinance a Student Loan?

If you’ve decided to refinance a student loan, a cosigner might help you qualify if your own credit is not strong enough.

Lenders review a variety of factors to determine whether or not they will give someone a loan. Things like a low credit score or a credit history that’s not robust enough can serve as an indicator to lenders that an individual who is refinancing student loans without a cosigner might be a credit risk. Adding a creditworthy cosigner could make a potential borrower appear less risky, since there’s another person — one with a strong financial and credit background — to help guarantee repayment of the loan.

One important thing to note about student loan refinancing — either with or without a cosigner — is that if you are refinancing federal student loans, they will be ineligible for federal benefits like income-driven repayment and federal deferment.

Recommended: Can You Refinance Student Loans Without a Degree?

How a Cosigner Impacts Your Approval Odds and Interest Rate

If your credit is limited or your income is small, lenders may consider you a higher-risk borrower. In that case, adding a creditworthy cosigner might increase your chances of getting approved for student loan refinancing. The lender evaluates the cosigner’s credit as well as yours, which may lower the perceived risk since the cosigner will share responsibility for the loan.

Having a creditworthy cosigner may also lower the interest rate you’re offered. Even a rate that’s a few percentage points lower might make a significant difference over the life of the loan. For example, if you were approved without a cosigner for a loan of $35,000 with a rate of 9.00% and a 10-year term, your monthly loan payments would be $443, and the total cost of the loan with interest would be $53,200. If adding a cosigner helped you qualify for a refinance loan with a rate of 6.5%, your monthly payments would be $397, and the total cost of the loan with interest would be $47,700. You’d save $46 a month and $5,574 overall.

Finding a Cosigner

If a borrower can’t qualify for a loan based on their own credit history or current income, student loan refinancing with a cosigner who has a strong credit history may help improve their prospects.

Who Makes a Good Cosigner

Ideally, a cosigner for student loan refinance should have a strong credit history, steady employment, and a good income. In addition, they should be an individual who can be trusted to repay the debt in the event the primary borrower can’t. And finally, because cosigning a loan is a big commitment, it’s important for the borrower to choose someone they feel comfortable asking.

How to Ask Someone to Be Your Cosigner

Being a cosigner is a big responsibility, so how you ask someone to cosign is important. Treat the request with respect. Be open and honest about why you need to refinance student loans with a cosigner. Explain, for instance, that you are recently out of school and don’t yet have a strong credit history. By applying with a cosigner you are more likely to be approved for a refinance loan and get a lower interest rate. Also, detail your plans for repaying the loan so the other person knows you are serious about and committed to handling your debt.

Should a parent cosign a student loan, or should any relative or friend for that matter, it’s important to make them aware of the responsibilities and legal obligations involved. In addition, be sure they are prepared to repay the loan if you are not able to do so. They should also understand that anything negative regarding the loan, such as late payments, can impact their credit.

Pros and Cons of Having a Cosigner

Taking out a loan with a cosigner is a significant commitment, so it’s worth carefully considering the pros and cons. What’s right for you will depend on your personal and financial situation.

One of the most notable benefits of refinancing with a cosigner is the potential to qualify for a loan that may not have been an option otherwise. A cosigner could also possibly help you qualify for a lower student loan interest rate than what you might receive on your own. If you have little to no credit history or poor credit, refinancing student loans with a cosigner may give you an opportunity to work on strengthening your credit over time.

On the other hand, there can be drawbacks to refinancing with a cosigner. If you fail to make payments on your loan, your cosigner will be responsible for repaying your debt. As a result, missed payments will likely reflect on both of your credit histories. This could also negatively impact your personal relationship with the cosigner.

Using a Cosigner when Refinancing Your Student Loans

When you’re refinancing your student loans, enlisting a friend or family member to cosign your refinanced loan may help strengthen your loan application.

Again, keep in mind that acting as a cosigner has risks — if you don’t pay back your loans, your cosigner is on the hook. It’s a big request, so take some time to think about how you’ll make it. Here are some additional tips that may help inform your conversation:

1.    Asking respectfully. You’ll want to broach the subject thoughtfully and respectfully. You’re asking the person for a serious commitment, so asking with tact to show you understand the gravity of your request is crucial.

2.    Showing your dedication. As noted, it’s also important to make it clear to your cosigner that you’re going to be making timely payments on the loan. One simple way to do so is by providing them with regular updates.

3.    Illustrating to your cosigner that you understand the intricacies of your loan. They’ll be responsible for the loan if you fail to make payments, so they’ll likely want to make sure you understand the responsibility you’re taking on — and asking them to take on.

Steps to Refinance a Student Loan With a Cosigner

When you’re ready to move forward with a student loan refinance with a cosigner and the cosigner has agreed, these are the steps to take:

1.    Shop around for lenders that allow cosigners on student loans. Once you have a list of these lenders, compare their rates and terms. You can typically prequalify for loans with several lenders without an impact on your credit.

2.    Once you’ve chosen a lender, pull together the documents you’ll need for yourself and your cosigner. This generally includes your identification, loan statements, and financial documents such as proof of income.

3.    Apply for the loan by filling out and submitting a formal application with your cosigner. This will entail a hard credit check for both you and the cosigner that may temporarily lower your credit scores by a few points.

4.    Once the loan is approved, you and the cosigner will both sign a loan agreement to formalize the loan.

Things to Consider if You’re Asked to Cosign a Loan

If you’ve been asked to cosign a loan, be aware that serving as a cosigner can come with consequences for your finances if the primary borrower fails to make payments. If you’re a family member or friend with excellent credit and a well-paying job, you could be a candidate as a cosigner. But if you have some hesitation, here are a few steps you can take:

1.    Talking it out with the borrower. The borrower is going to use your name and credit history to take out a loan. It can be helpful to understand why they feel they need a cosigner while making sure they have the means to repay the loan.

2.    Following up often. Keeping the lines of communication open so you are aware of any issues can be helpful for both parties. If need be, you could discuss making payments on their behalf to avoid the impact of a late or missed payment on your own credit score.

3.    Accepting negative outcomes. Even if you’ve done everything you can to ensure the borrower is trustworthy, something might come up where they let you down. Your credit score might take a hit and you might be responsible for making payments yourself. Remember that this could happen, so accepting it as a possibility may be helpful.

Cosigning a loan is a big responsibility that can have implications on your financial future, so take some time to consider the idea.

If you decide not to cosign, you can let the requester down gently by trying to help them think of some alternative options to secure the loan or money they need.

How to Remove a Cosigner After Refinancing

Some lenders allow cosigners to be removed from a loan through a cosigner release. This allows the cosigner to be officially released from the loan and all the responsibilities that come with it. Typically, the primary borrower has to apply for a cosigner release with the lender.

Depending on the terms of the loan, the cosigner may be able to be released if the primary borrower has graduated from college and meets certain requirements as stipulated by the lender. Typically these requirements include such things as the primary borrower making one to two years of on time payments, having a good credit report and no loans in default, and being in a stable job with a steady income.

If your lender doesn’t offer a cosigner release, another way to take a cosigner off your loan is to refinance your student loans again. When you refinance, you replace your old loans with a new loan that has new terms. If you can qualify for the refinance on your own, you won’t need to include the cosigner on the new loan.

Refinancing Student Loans With SoFi

If you’re interested in refinancing student loans but your credit isn’t strong enough, enlisting a trusted person with a strong financial background as a cosigner may help you qualify for a loan and/or get a lower interest rate. Or, if your credit has strengthened over time, and you can qualify on your own, you might consider refinancing without a cosigner.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.

FAQ

How does adding a cosigner affect my interest rate?

A cosigner with strong credit and a solid financial background may help a borrower qualify for a lower interest rate when refinancing a student loan. Generally, the more creditworthy the cosigner is, the better a borrower’s chances of getting a lower rate may be.

What credit score does my cosigner need?

The credit score a cosigner needs for a student loan refinance depends on the lender’s specific criteria. Typically, many lenders look for a credit score of 670 or higher. The higher the cosigner’s score, the lower the interest rates you may be offered.

How long will my cosigner be responsible for my loan?

A cosigner is generally responsible for a loan until the loan is repaid in full. However, a cosigner may be able to be released from a loan through a cosigner release option — if a lender offers it and the primary borrower meets specific criteria set by the lender. Another option is for the primary borrower to refinance the loan again in their own name only, without the cosigner.

Do I need a cosigner for student loan refinance?

The specific requirements for refinancing a loan with a cosigner will depend on your credit history and income (among other factors) and the eligibility requirements of the lender. Borrowers who have a less than stellar credit history may find that adding a cosigner to their application allows them to qualify for a student loan refinance and a more competitive interest rate.

Can a cosigner refinance a student loan on their own?

It’s possible. Although many lenders require the primary borrower to refinance a student loan, some lenders do allow a cosigner to refinance the loan in their own name. The cosigner would apply for a new refinancing loan in their own name, and that loan would pay off the old loan. This would legally remove the primary borrower from the loan and relieve them of the debt.

Can a cosigner become the primary borrower?

In order for a cosigner to become the primary borrower of a student loan, the loan would generally need to be refinanced in the cosigner’s name.

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