How to Get a Student Loan Cosigner Release
Having a cosigner can help you get a private student loan, but it carries risks. Fortunately, some lenders will allow a cosigner release if you meet certain requirements. Be prepared to show good credit and income, as well as a steady history of on-time payments.
More than 90 percent of students who take out private student loans have a cosigner when they borrow, according to LendEDU’s latest analysis of student debt statistics.
A cosigner is someone – often a family member or close friend – who shares equal responsibility with the primary borrower for repaying a loan. Creditworthy cosigners are needed to help strengthen a loan applicationwhen primary borrowers can’t qualify for the loan on their own, usually because of a low income or a poor credit history.
Unfortunately, cosigners face substantial risk by signing for student loans because creditors could come after them for payment if the primary borrower stops making their student loan payments or passes away before the loan is repaid. Plus, the debt shows up on the cosigner’s credit report, which could make it more difficult to get other loans, such as a mortgage. If the debt is not repaid on time, that could affect the cosigner’s credit score.
Students benefit from accessing private loans and lower interest rates thanks to cosigners, but it’s often best for both the cosigner and primary borrower to try to get your cosigner released as soon as possible. Once a lender has granted cosigner release, the cosigner is free and clear, and the debt is no longer their obligation.
Steps to Take for a Cosigner Release
1. Consider Refinancing Your Student Loans
One of the easiest ways to obtain cosigner release is to refinance your student loans.
Student loan refinancing means you take a new loan out, often from a different lender. The new loan will ideally have more favorable repayment terms, which means you could lower your monthly payment and the total interest you pay. You can use the proceeds from the new loan to pay the existing student loan debt, so you would no longer owe the original lender.
Refinancing your student loans that currently have a cosigner can be a very simple and quick way to release the cosigner from any responsibility. However, you need to qualify for a refinance loan in your own name. If you can, you’ll be the only one who owes the new loan, and the loan account the cosigner shared responsibility for will be paid off.
Many refinance lenders have similar requirements in terms of proof of income (such as recent pay stubs) and a satisfactory credit history as private loan lenders do. Unless your financial situation has improved since you initially required a cosigner, this option may not work for you.
You’ll also want to make sure the new loan actually does offer reasonable terms so you don’t make debt payment much more expensive for yourself.
2. Find Out If Your Lender Offers Cosigner Release
If you don’t want to refinance your loan, or can’t qualify for a loan refinance, your existing loan servicer might be willing to allow your cosigner to be released from repayment obligations. But even then, you must meet certain criteria.
Most, but not all, private lenders provide a process for cosigner release. To find out if yours does, call them, send them a letter, or check online.
The Consumer Financial Protection Bureau has sample scripts you can use when contacting your lender online or via mail.
3. Determine If You Can Meet Your Lender’s Requirements
When your lender confirms a cosigner release is an option, find out exactly what is required before your cosigner can be released from their obligations. The specific requirements will vary from one lender to another, but some common requirements include:
- Proof the primary borrower has graduated from college: It’s usually not possible for a cosigner to be released while the borrower is still in school
- A certain number of on-time monthly payments: Many lenders require borrowers to have made between 12 and 48 full payments, including both principal and interest, before the lender will release a cosigner
- Proof of employment: Borrowers may need to prove that they have a steady job and are earning a certain minimum amount of income
- Good credit: The primary borrower must meet minimum credit requirements, which vary by lender
- Must be a U.S. citizen or permanent resident
If you can’t currently meet the requirements your lender has set forth for cosigner release, you’ll need to take steps to ensure you can fulfill them in the future if you want to help your cosigner be released from the loan someday.
You may need to make more payments, increase your income through a side-hustle, or take steps to improve your credit.
4. Get Your Documents Together
If you believe you meet the requirements for cosigner release, you’ll need to assemble any necessary documents to prove it. This could mean obtaining:
- W2s, pay stubs, or tax returns to provide proof of income
- A copy of your degree or college transcripts to show you’ve graduated
- Cosigner release application
It’s helpful to have all the paperwork together so when you submit your application to your lender, you can provide the documents your lender will need and there will be no unnecessary delays.
5. Submit Your Application
Finally, you’ll need to submit a request for cosigner release. You can do this via mail – the CFPB also has helpful sample letters for this. Just be certain to send your requests and documents certified with return receipt requested so you’ll know when your lender has received them.
Your lender should respond within a few weeks to either let you know that your cosigner will be released or to explain why you do not qualify for cosigner release at the time. If you don’t qualify, your lender should explain why and provide insight into the steps you need to take so your cosigner could be freed from responsibility for the loan.
If your lender allows cosigner release, be sure to keep all of the documentation. The debt should be removed from the cosigner’s credit report. So after a few weeks, the cosigner should check to make certain everything has processed properly.
Cosigner Release Has Major Benefits
A cosigner release can benefit the primary borrower because he or she no longer needs to feel beholden to a cosigner. Primary borrowers also won’t have to worry anymore about the cosigner getting stuck with the bills in case of untimely death or default due to financial hardship. Furthermore, the primary borrower doesn’t have to worry about the entire loan coming due if the cosigner dies.
Of course, cosigners have the most to gain. They are the major beneficiary of cosigner release because they will no longer be responsible for the debt.
Without this debt obligation, former cosigners can make other plans for their qualified credit, such as cosign for a second child to go to school or borrow for a home or car. They also no longer have to worry about their credit and financial future being damaged in the event a loan doesn’t get paid.
Because cosigner release is so important, make certain any private loans you take out while in school offer this as an option. At the time you apply, find out from the lender if a cosigner release will be available in the future.
If it isn’t and you need a cosigner, consider borrowing from a different private student loan lender. That way, when you graduate, you and your cosigner won’t be stuck with shared debt.
Author: Christy Rakoczy
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