Cosigning Student Loans & How to Remove a CosignerDecember 27, 2018
Updated December 23, 2021
The cost of college continues to rise and more and more students are taking out private student loans to help finance their education. Because many students haven’t had time to build credit before starting college, they need cosigners to be approved for student loans. About 92% of students with private student loans rely on a cosigner.
As more college graduates step into experienced job roles and make more money, cosigner release is becoming a popular topic. You may have seen a letter in the mail from your student loan servicer or heard from others that they were able to release a parent or relative from cosigner duties. But how does a cosigner release work?
What Is a Cosigner & Who Can Be a Cosigner?
A cosigner is someone who agrees to take responsibility for repaying your student loan if you stop making the payments. When you apply for a loan with a cosigner, potential lenders will take their credit score into consideration. That’s good news if you’ve just started building credit or you have a low score.
Anyone whose credit score qualifies them for borrowing is eligible to become a cosigner. It’s most common, however, for students’ parents to cosign with them.
Student Loan Cosigner Requirements
If you’re considering a cosigner, you should keep a few things in mind. First and foremost, having a highly-qualified cosigner will give you the best chance of competitive student loan interest rates and terms. A few things constitute a qualified cosigner:
- A good credit history: Lenders are more likely to approve the loan if the cosigner has a credit score above 720, a low debt-to-income ratio (DTI), and a history of on-time payments. A high credit score can also mean lower interest rates.
- Stable income: Lenders are more likely to approve you for the loan if your cosigner has a steady, verifiable income.
- Good Health: Health is not a criterion for approval, but some lenders do include clauses that allow them to demand the loan be paid in full or put into default upon the death of the cosigner.
- Personal Relationship to the Student: As cosigning a loan can be a financial risk, it’s best to ask a family member or close friend.
What Are the Responsibilities of a Cosigner?
A common misconception about cosigning a loan is that you’ll be solely responsible for its repayment. That’s not true, however. Being a cosigner means that you and the student are jointly responsible for paying the balance of the loan.
In the event that the borrower stops paying their student loans, the cosigner becomes the focus of repayment efforts by the loan holder or servicer. If the borrower is unable to make payments because of a disability, the loans might be forgiven.
In some special cases, the cosigner won’t have to pay. In general, though, cosigning a loan is a long-term commitment that can’t be undone except through payoff, release, or extenuating circumstances.
Student Loan Cosigner Rights
Cosigning a loan is a major responsibility that shouldn’t be taken lightly. Cosigners can, however, take a few actions to protect themselves in the event that the borrower is unable to make payments. It’s important to note that these options are limited and depend on the loan terms.
If you’re a cosigner and find that the primary borrower can no longer make payments, here are a few options that may be available to you:
- Request a cosigner release
- Work with the lender to arrange split payments with the primary borrower
- Assume full responsibility for payments
- Refinance the student loans and take control of the debt
- Hire a student loan lawyer to help work through additional options
Pros & Cons of Cosigning Student Loans:
As with all major decisions, it’s important to weigh the pros and cons before choosing to cosign a loan. If the primary borrower is someone you’re close with, you may choose to cosign to give them the opportunity for the following benefits:
Pros of Cosigning a Student Loan:
- The loan may be more easily approved
- The primary borrower can build credit by making on-time payments
- The borrower will have a better chance of receiving favorable loan terms and lower interest rates
Cons of Cosigning a Student Loan:
- The cosigner may become solely responsible for payments if the primary borrower cannot pay
- Most lenders do a hard credit pull on both the borrower and cosigner, meaning a temporary credit score decrease
- Cosigning a loan may make obtaining additional loans, like a mortgage or car loan, more difficult due to a higher DTI ratio
- If the primary borrower misses payments or the loan goes into default, those actions will impact the cosigner’s credit score. If that happens, it can be very difficult to remove student loans from a credit report.
How Does Cosigning Student Loans Affect Credit?
Before asking a friend or family member to take on the responsibilities of a cosigner it’s important to understand how that will affect their credit. Since a cosigner and borrower share the responsibility of a loan, it appears on both of their credit reports. If loan payments are made on time and the borrower is in good standing, then the cosigner will also benefit from the good credit. If the loan has late payments or goes into delinquency, this will negatively affect the cosigner’s credit. In addition to affecting the cosigner’s credit score, they may become limited as to the amount of credit available to them. Before asking someone to be a cosigner verify they are not looking to have any large amounts of credit like a mortgage, credit card, or car loan.
When Do I Not Need a Cosigner?
Students generally do not need cosigners to qualify for federal loans like Stafford or Direct Loans. Depending on the type of loan you’re seeking, however, having a cosigner can improve your chances of being approved.
Private lenders may require a cosigner for borrowers who don’t meet their income or credit history requirements. It’s also common for students who apply for private loans to add a cosigner to qualify for a better rate than they could get on their own. If you do meet the lender’s eligibility requirements on your own, you won’t be required to add a cosigner.
What Is a Cosigner Release?
Cosigner release is when the person who cosigned on a loan for you is taken off of the agreement and no longer considered partially responsible for the loan. This makes the borrower solely responsible for the remaining amount of the loan. Some student loan refinancing lenders don’t offer cosigner release.
When student loans are granted, they are provided based on your cosigner’s credit and the borrower’s credit. In traditional cosigner releases the student loan terms would remain the same as when the borrower took out the loan with the cosigner on it. The only difference with the cosigner release is the cosigner is being removed. When they allow you to release your cosigner depends on the company, if it is offered at all.
Most companies that offer cosigner release allow you to do so, once you’ve made two consecutive years of payments on time. Others may have longer terms for on-time payments before they allow you to apply for release. If you haven’t been making the full payment, that might eliminate your eligibility to release your cosigner. The release also has to be initiated by the borrower and can’t be requested through the servicer by the cosigner.
Not all companies offer cosigner releases. As we mentioned earlier since some loans are originated to include that cosigner, just removing them can be tough. That’s why many companies don’t offer cosigner releases, but don’t stress. If you choose to refinance a loan with a cosigner but then decide you’d like to remove that cosigner, there are other options available to you.
Benefits of a Cosigner Release
Cosigning student loans is a generous, but serious, financial decision. Here are a few reasons to consider a cosigner release:
- When the primary borrower can pay the loan without help, releasing the cosigner absolves them of cosigning obligations and potential consequences
- If the cosigner wants to take out another loan, for example, on their car or house, removing them from the loan will lower their DTI
- Removing a cosigner protects them if the primary borrower can’t repay the loan due to injury or death. For more information on this topic, explore why cosigners should take out a life insurance policy.
How to Remove a Cosigner From a Student Loan
When you’re ready to remove your cosigner from your student loan, the most common methods are applying for a cosigner release and refinancing your student loans. To apply for a cosigner release, follow these five steps:
Step 1: Make a qualifying number of on-time payments
Different lenders may have varying requirements when it comes to the number of on-time payments you must make before releasing your cosigner. The most common requirement is making 12 timely payments, but some lenders may require 24, or even 48.
Generally, payments must be consecutive without periods of deferment or forbearance, and fixed or interest-only payments made during college may not always count. Ask your lender about their specific cosigner release requirements to find out whether you qualify.
Step 2: Contact Your Lender About Applying for Cosigner Release
Once you know the required number of payments for removing your cosigner, the next step is to get in touch with your lender and start the process. You can call your lender directly, or if you need some help finding the right words, research sample cosigner release letters for guidance. The Consumer Financial Protection Bureau (CFPB) offers example letters both for the primary lender and for cosigners looking to be removed.
Step 3: Confirm You Meet the Requirements for a Student Loan Cosigner Release
Often, making on-time payments is not the only qualification you must meet to remove your cosigner. To make sure you’ve checked all the necessary boxes, contact your lender to find out about any specific requirements they may have for a cosigner release. For example, some lenders may require the primary borrower to:
- Meet their minimum credit score requirements on their own, without help from the cosigner
- Provide proof of income to ensure they can cover debt payments
- Have graduated from college
- Be a U.S. citizen or permanent resident
Among other things. Be careful to review the eligibility criteria carefully so you don’t hurt your chances of being approved for a cosigner release.
Step 4: Gather the Necessary Documents to Prove Income and Eligibility
Before you can remove your cosigner, most lenders will require you to provide documentation that proves you can handle your student loan payments without them. Collect the following documents ahead of time.
- Social Security number
- Proof of graduation
- Proof of income – this may be a W2, a recent pay stub or a tax return
- Information about other debts, like a lease or car loan statement
Having the necessary information prepared in advance is another way to show you’re a trustworthy borrower and are ready to take on the responsibility of solo repayment.
Step 5: Submit Your Cosigner Release Application
Once you’ve completed the four previous steps, it will be time to submit your cosigner release application. Send any required documentation to your lender via certified mail or email, and be sure to keep a record of all your communications. This is important in case any issues arise with your application and you need to refer to previous conversations.
In most cases, you’ll hear from your lender within a few weeks. If more time passes without communication, follow up with your lender to be sure your application is on track. Many lenders don’t make it easy to access cosigner release information, so be patient and consistent with your follow-ups if your lender isn’t quick to respond.
Throughout the process, be sure you’re familiar with the lender’s cosigner release requirements, and that you’re following them closely. In 2015, the CFPB found that 90% of cosigner release applications were denied because applicants did not meet the necessary requirements.
Student Loan Refinance Cosigner Release
People often ask, “What if I just refinance my loan without the cosigner on it. Is it the same as a cosigner release?” Refinancing student loans is not the same thing as getting a cosigner release. Before we go into greater detail, it’s important to understand that very few loans are refinanced with a cosigner.
If you are in a position to meet student loan refinancing eligibility requirements, then you don’t need a cosigner to make the new loan possible. There are some exceptions, but during refinancing, you’d be able to check with the servicer to see what terms you could get on your own and then go from there. Most companies that refinance student loan debt will allow you to add a cosigner if you do not qualify on your own, but the cosigner will need to submit some information. If you choose to set up a new refinanced loan without the cosigner, it releases them from the obligation of the former loan.
Can I Remove a Cosigner Without a Cosigner Release?
You may be asking, “Is there another way that a cosigner can be removed from a loan without utilizing a cosigner release?” The answer is yes. Aside from utilizing a cosigner release or refinancing the loan without the cosigner, the borrower or cosigner can pay off the student loan debt. Once the debt is paid off, both parties are no longer responsible for the debt.
Before you ask someone to cosign on a loan, consider these things and be sure that they are okay with the responsibility. Make sure that you as a borrower have an understanding and a plan for paying back that debt. If you don’t think that you can pay back the debt or are uncertain of how you will pay off the debt, you should not involve a cosigner.