Student Loan Cosigner Release: How it Works

People take a big chance when they agree to cosign a student loan.

If you, the user, can’t make payments, your cosigner will be responsible for your student loans. And this can lead to terrible things for them. It can:

• Hurt their credit

• Make it harder for them to pay their bills

• Make it hard for them to get a home or other loans

So, if your finances are better now than when you were a college student, it might be time to think about getting your cosigner off the hook.

There are two ways to remove a student loan co-signer:

• Co-signer release.

• Student loan refinancing.

Student loan refinancing is usually the best choice if you can get a cheaper interest rate. It will get rid of your co-signer and save you money. You can refinance your student loans in your name if you have good credit, a good annual income, and a history of making your monthly payments on time.

If you can’t get a better interest rate by refinancing your student loans or want to avoid comparing rates and moving lenders, ask your co-signer to be taken off the loan.

Ahead, we’ll talk about your choices for getting your cosigner off your student loan if you’re a U.S. citizen or a DACA student. This will give you the help you need to succeed in your personal finance journey.

Related: How to Remove a Cosigner From a Student Loan

Getting your cosigner off a student loan can be a clear process, but it isn’t always. Once you’ve met the eligibility requirements, the process moves the loan into your name. Most importantly, making payments on time for at least 12 straight months for the full amount owed.

The health of your credit is also important. Private student loan lenders look at your FICO score, look for financial problems like delinquencies, and figure out how much debt you have compared to how much money you make. They want to ensure you can repay the loan on your own.

Documents are needed for some parts of the release process. You might need to show pay stubs, tax records, and proof that you are an American citizen or live in the U.S.

Keep in mind:

• Know the terms of your loan, like the amount, how long it will last, and how much interest you will pay.

• Set up autopay to ensure regular payments.

• Keep track of how often you use your credit card.

• Stay up to date on the details of your loan and any possible merging or refinancing.

Remember that your lender’s student loan cosigner release option may differ. Speak with your servicer to get an application and the requirements.

Federal student loans typically bypass the need for cosigners or credit checks. But sometimes, graduate students, parents, or professionals opting for PLUS loans may require an endorser if their credit history is lacking. This endorser is usually a parent, guardian, or a non-student individual.

Seeking to release your endorser? Reach out to your federal student loan servicer. Or consider consolidating your federal PLUS loans with other Direct federal loans, which might effectively remove your endorser.

Consolidation merges all your federal debt into a single payment and extends the grace period across all loans. While it might not save money and even prolong your repayment period, it can simplify your loan management. Federal loans also provide diverse repayment options, making them more manageable. Starting your college funding journey? Kick off with the FAFSA form to explore available aid.

Cosigner release is a significant milestone for both primary borrowers and cosigners in their private loan journey. But why is it a game-changer?

• Reduced Financial Risk: A release frees cosigners from the loan obligation, mitigating their financial risk. It prevents their credit score from being affected by any late payments or defaults by the borrower.

• Improved Credit Health: For borrowers, successfully obtaining release demonstrates their creditworthiness, possibly enhancing their credit score.

• Loan Responsibility: Release signifies the borrower’s ability to manage the loan independently. This financial responsibility might help them secure further credit in the future.

• Building Trust: Achieving release can be seen as a mark of trust and reliability, reflecting positively on the borrower.

But pursuing release is a significant step. Both parties should understand the implications.

For example, the borrower will have to meet the lender’s standards for credit and show that they make enough money. Also important are the unique underwriting standards of the lender and the borrower’s payment history.

To get a cosigner off your loan, you have to do more than just ask. It’s a goal that can be reached if you meet certain requirements set by lenders. Usually, these factors are:

• Strong Credit Profile: You’ll need a good credit score and a clean credit report showing that you can responsibly manage the loan solo.

• On-time Payments: Demonstrating financial dependability through consecutive on-time payments is typically required, with lenders usually seeking 12 to 48 months of timely payments.

• Stable Income: You’ll need to provide proof of income to reassure lenders you can maintain loan repayments. This might involve submitting recent pay stubs or tax returns.

• Acceptable Debt-to-Income Ratio: Your income should sufficiently cover your existing debts, including the student loan, reflected in an acceptable debt-to-income ratio.

• Credit Check: Private lenders often conduct a credit check to verify your creditworthiness independently.

• Cosigner Release Application: Expect to fill out a cosigner release application. This process includes thoroughly reviewing your financial status and the loan’s terms and conditions.

• Residency Status: Many companies that refinance student loans want you to be a U.S. citizen or a permanent resident. Most of the time, DACA borrowers and foreign students will need a U.S. citizen cosigner.

Applying for cosigner release is a process that requires careful planning and diligence. Here’s a step-by-step guide on how you can navigate through this procedure:

1. Understand your loan terms: Before starting the process, thoroughly understand the terms of your student loan. Familiarize yourself with your agreement’s repayment period, variable rates, and other specifics. Knowing these details helps prepare for any changes once your cosigner is released.

2. Meet the prerequisites: Ensure you meet the requirements set by your lender, including credit requirements, income requirements, and a record of on-time payments. These prerequisites can differ based on the lender, so understanding your lender’s specific criteria is crucial.

3. Maintain good financial health: A clean financial record is vital. Maintain a low debt-to-income ratio and demonstrate a solid payment history, including on-time student loan payments and other debt repayments. This good financial standing can influence your lender’s decision positively.

4. Submit the cosigner release application: Once you’re confident that you meet all criteria, contact your lender to initiate the cosigner release process. This often involves filling out an application detailing your financial standing, including income proof and credit history.

5. Wait for the lender’s decision: After applying, the lender will evaluate your creditworthiness to handle the loan independently. This process might take some time, so be patient and remain proactive about any communication from your lender.

6. Continued payments: Continue making regular payments during the application process. Any late payments or financial mishaps can negatively impact your chances of approval.

Releasing a cosigner from your student loan isn’t always guaranteed. Each lender has its discretion and will consider various factors, including your aggregate student loan debt and ability to take over the full payments.

If your application for cosigner release is denied, don’t be disheartened. Ask your lender for feedback on areas to improve. Consider seeking financial aid advice to improve your financial standing, increasing your chances for future approval.

Refinancing presents a practical route to release your cosigner. It involves taking out a new loan to settle your old ones, transforming multiple debts into a single loan with fresh terms and possibly a lower interest rate.

Imagine being in a stronger financial position than when you first took out your loan. Through refinancing, you can secure a new loan without a cosigner and potentially benefit from a lower interest rate. This could mean significant savings over the lifetime of your loan.

Take, for example, a loan of $15,000 with a fixed interest rate of 7.54% over ten years. You’d pay approximately $6,403 in interest. But what if you refinance to a more favorable rate, like 4.99%? Suddenly, your total interest drops to around $4,083 — a whopping saving of over $2,100.

Another perk of refinancing is flexibility. You can adjust the length of your term and the type of loan. Extend your term for lower monthly payments, but remember, this means more interest over the loan’s life. Conversely, a shorter term could mean less interest and a quicker payoff.

Lastly, refinancing gives you a choice between fixed and variable-rate loans. Variable-rate loans usually start lower but may fluctuate. Fixed-rate loans, on the other hand, remain consistent, unaffected by market trends or interest rate shifts. The only way to alter a fixed rate? You guessed it — student loan refinance.

Navigating the world of student loans can be challenging, particularly for borrowers experiencing financial hardship. However, it’s essential to know that options exist to provide some relief. Three such options are forbearance, deferment, and loan forgiveness.

1. Forbearance: This option allows you to temporarily pause your student loan payments during times of financial hardship. It’s important to note that interest continues to accrue on your loans during forbearance, which could increase your total loan amount. However, this option provides short-term relief when making current payments is not feasible.

2. Deferment: Unlike forbearance, deferment allows you to temporarily suspend loan payments. The key difference lies in the interest accrual. The federal government may pay the interest during deferment for certain types of loans, preventing your overall loan balance from growing.

3. Loan Forgiveness: This long-term option eliminates your obligation to repay some or all of your loan. Qualifying for loan forgiveness often involves working in public service or participating in specific income-driven repayment plans for a certain period. It’s crucial to understand the terms and conditions associated with these programs, as failing to meet them might result in losing eligibility for loan forgiveness.

Each option provides different benefits and drawbacks, so it’s essential to carefully evaluate your financial situation before deciding. Consulting with a financial advisor or loan servicer can provide further guidance and help you determine the best course of action.

Selecting the right lender for your student loan needs involves comparing their offerings, terms, and benefits, including their policies on cosigner release. Here are three popular lenders in the industry: Sallie Mae, SoFi, and Ascent, each with its distinct characteristics.

1. Sallie Mae: As one of the most well-known student loan providers, Sallie Mae offers a wide range of loan options. Their cosigner release policy stands out as it allows for the release after 12 consecutive on-time principal and interest payments, assuming the borrower meets specific credit requirements. This flexibility makes it an attractive choice for many borrowers.

2. SoFi: Known for its refinancing options, SoFi does not typically require a cosigner for their student loans. However, borrowers have the option to add one if they choose. SoFi does not offer an official cosigner release program if a cosigner is added. It’s essential to consider this aspect when opting for SoFi.

3. Ascent: Ascent offers both cosigned and non-cosigned student loans. For their cosigned loans, borrowers may request a cosigner release after making 24 consecutive, full principal and interest payments on time, along with meeting other credit and income criteria.

Every lender offers a unique set of benefits and drawbacks. Your choice should depend on your financial situation, your ability to make consistent on-time payments, and the flexibility you require in terms of cosigner release.