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Do You Need A Cosigner?
Updated On September 6, 2022
Editorial Note: This content is based solely on the author's opinions and is not provided, approved, endorsed or reviewed by any financial institution or partner.
When applying to refinance student loans or borrow student loans, your lender may require a co-signer. If this happens to you, don’t worry. Many applicants need a co-signer to help get approved and get a lower interest rate. Here is everything you need to know about co-signers.
What is a cosigner?
If you have a limited credit history, you may need another creditworthy person (e.g., a parent, spouse, relative or friend supportive of your educational goals) to help you qualify for a loan. A creditworthy co-signer is someone who has strong credit and an ability to repay the student loan.
The benefit of a co-signer is that a lender considers the income and credit history of both you and the co-signer, which improves your chances of being approved for a student loan. A cosigner is equally responsible with you for the student loan obligation. You can learn more about which lenders offer cosigners and other benefits.
What is a co-signer release?
Once you have been approved for to refinance student loans or get a new student loan, your cosigner may not want to be financially responsible for your student loan. In this case, some lenders will release the cosigner from his or her obligations to repay the student loan. This typically occurs after you have made a certain number of on-time monthly payments.
After the cosigner is released from the student loan, you will have sole financial responsibility for the student loan. Lenders will also want to assess your credit to ensure that you can repay the student loan on your own. You can learn more about which lenders offer cosigner releases and other benefits.
What are the requirements for a co-signer release?
While each lender has its own underwriting criteria, you will have to be able to demonstrate to y lender that once your co-signer is released that you can repay the student loan on your own. Here are some of the most common requirements:
- You must have graduated from college
- You must have made a certain minimum number of student loan repayments, including principal and interest (e.g., 12-36 monthly payments)
- You are employed and meet a certain minimum income threshold
- Your credit meets the underwriting standards of the lender
Benefits of co-signer release
Most of the benefits are for the co-signer who can be released.
- No further obligations to repay the student loan (sigh of relief)
- Credit score improvement
- Funds available to help co-sign other student loans (e.g., other college-bound children)
The borrower benefits as well. Yes, it can be a little scary to have sole responsibility for paying off student loans. But, it can be a confidence builder to know that you are financially responsible and have increased your independence.
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