Is CoSigner Release Possible?October 25, 2018
By Robert Farrington, Senior Contributor at Forbes
A few weeks ago at a conference I was talking to some of the best student loan debt experts in the country, and the topic of cosigner release came up. If you’re not familiar with cosigner release, it’s the “feature” of certain student loans where a cosigner can be released from the loan after a certain number of on-time payments are made.
In our conversation, none of the student loan experts had seen a successful cosigner release. Furthermore, a Consumer Finance Protection Bureau (CFPB) study found that 90% of cosigner release applications were rejected by the lender.
Cosigner release looks different for in-school loans and refinanced student loans. According to that CFPB study, about 90% of private in-school student loans have cosigners. However, according to Barbara Thomas, Executive Vice President of Southeast Bank and Head of Education Loan Finance, “Only a very small percentage of refinancing loans are cosigned. Unlike the in-school product, where 90% of loans are cosigned, the refinancing borrower typically has what it take to qualify on their own”.
How Cosigner Release Is Advertised
If you check out any of the top private student loan lenders, you’ll typically see cosigner released advertised on their homepage. According to Pete Wylie, Vice President of Student Lending at Commonbond, they’ve been offering cosigner release for undergraduate and graduate loans for two years, and they expect this feature to be a popular option for their members as they graduate and advance in their careers.
And most major lenders offer and advertise it.
Some common sayings include, “Apply to let your cosigner off the hook after two years of on-time payments.”
“Our lenders offer cosigner release to creditworthy borrowers who have made consecutive, full on-time principal + interest payments.”
“You may apply to release your cosigner from the open and active loan after you graduate, make 12 on-time principal and interest payments, and meet certain credit requirements.”
That sounds well and good in practice, but then why are 90% of cosigner release applications being rejected?
The Process For Cosigner Release
The process for cosigner release varies from lender to lender, but Sallie Mae’s website has the most detailed example of what it takes to apply (this doesn’t even guarantee approval):
You (the borrower) must:
- Submit a signed and fully completed application.
- Meet the age of majority requirements in your state of residence. This means you need to be old enough to enter into a legally binding contract, which is 18 in all states except Alabama (19), Mississippi (21), Nebraska (19), and Puerto Rico (21).
- Provide proof of graduation or completion of a certification program (such as a copy of your diploma and/or transcript) for the loan(s) from which you want your cosigner to be released.
- Be a U.S. citizen or U.S. permanent resident alien at the time you submit the cosigner release request. If your citizenship status has changed since you applied for the loan, we need proof of citizenship.
- Provide proof of income (e.g., a current paystub issued within the past 90 days, a most recent W2 along with a current paystub issued within the last 90 days, a most recent tax return along with a current paystub issued within the last 90 days, or Social Security income/disability award letters).
- Be current on all Sallie Mae-serviced loans for the past 12 months immediately before applying for cosigner release.
- Demonstrate a satisfactory payment history on each loan requested for release immediately before applying. You can do this by pre-paying an amount equal to the required 12 principal and interest payments or by making the required 12 on-time principal and interest payments. Interest or fixed payments made during the in-school and separation or grace period(s) do not count toward this requirement.
- Have had no student loan(s) in a hardship forbearance or modified repayment program (including a Graduated Repayment Period) for the past 12 months immediately before the cosigner release request.
- Demonstrate the ability to assume full responsibility for repayment of the loan(s) on your own.
- Pass a credit review that demonstrates a satisfactory credit history including but not limited to no open bankruptcy, open foreclosure, student loan(s) in default, or 90-day delinquencies in the last 24 months. We’ll obtain a consumer credit report to go along with your application.
- Requirements are subject to change.
Once you complete the form and mail it in, Sallie Mae will then consider cosigner release.
One of the more interesting disqualifications is having a modified Federal student loan repayment program (including graduated repayment – which is typically considered a standard repayment plan).
Some Lenders Only Do Refinancing
Another surprising lesson learned in examining cosigner release is that some lenders don’t even technically do cosigner release. Instead, they simply refinance the student loan into just the borrower’s name – if they qualify.
For the lender, this solves a couple of problems:
- Securitization of the loan – many lenders, such as SoFi, collateralize and securitize the student loans into bundles which they then sell to investors. Since they securities have been rated by rating agencies, many don’t allow the underlying loans to change – as it would change the portfolio.
- Borrower qualifications – by simply using their existing refinancing standard, this saves a company from having a different system and process for handling the request
However, for the borrower, this could be potentially challenging. To remove a cosigner, the borrower would need to fully demonstrate the ability to repay the loan, and depending on the situation, that could be a high bar to clear. But, it’s not necessarily a different bar than the current cosigner release process anyway.
The Bottom Line
The bottom line is that cosigner release is a possibility, just a rare one. A borrower would need to be able to fully qualify for the loan on their own, without the help of a cosigner.
For the cosigner attempting to be released, that can be frustrating. If you believe that you would qualify for cosigner release but the lender has rejected your application, you should look at refinancing the loan on your own without a cosigner. You can easily shop around for the best places to refinance your student loans and see if you qualify.