Letting your cosigner off the hook? Make sure your income and credit is high enough.
While this can be an attractive idea for both borrowers and cosigners, it isn’t always as easy as it sounds. In fact, the Consumer Financial Protection Bureau (CFBP) found that only 10% of student loan borrowers that applied for cosigner release got approved. We walk you through what to expect and when to apply to optimize your cosigner release application for success.
What exactly is a cosigner release?
Cosigner release is when you apply to have your cosigner removed from your student loan. After you release your cosigner, they’re no longer responsible for paying off your loan if you can’t make repayments. They also won’t have that debt listed on their credit report.
Most private student loan providers offer cosigner release on undergraduate, graduate and specialized student loans, as well as student loan refinancing. There are no federal cosigner release options, since federal loans generally don’t require cosigners.
Tip: Lenders sometimes refer to cosigners as guarantors or endorsers. If you can’t find any information about cosigner release from your lender, you might want to ask about these terms too.
When should I request a cosigner release?
It’s generally a good idea to wait until you’re financially stable enough to make your full repayments on your own before you apply for cosigner release. Even better, wait until your income and personal credit are strong enough to qualify for your loan on your own.
You may want to request cosigner release if your cosigner wants to lower their debt-to-income ratio to qualify for a mortgage, credit card or other type of credit. And if you have siblings or relatives that need a cosigner, letting yours off the hook frees them up to cosign new student loans.
How to request a release
Cosigner release isn’t available with every loan, and lenders typically have their own procedures. You’ll first want to make sure you meet your lender’s cosigner release requirements before applying.
Steps to apply
The procedure for applying for cosigner release also varies by lender. However, you’ll generally need to follow these steps.
- Ask about your options. Lenders don’t always advertise their eligibility requirements for cosigner release. Start by reaching out to them to see if you qualify and ask about their application procedures.
- Submit a request. Some lenders have their own cosigner release application, while others accept a short letter as a formal request.
- Submit your documents. Once you’ve got the ball rolling, you’ll typically need to submit documents verifying your employment, income, credit score and other debt obligations.
- Wait to hear back. You may also be required to have your cosigner sign off on the release, though it’s not always obligatory.
Though it varies, lenders typically ask borrowers to meet the following requirements before granting cosigner release.
- Meet the minimum credit requirements. Most student loan providers require good credit or higher. Usually, the higher your credit score, the lower your rate.
- Meet the minimum income requirements. Typically, you’ll have to make at least $20,000 or $30,000 a year and prove you can afford your monthly repayments.
- Have a college degree. You can’t apply for cosigner release on a loan for a degree you haven’t yet completed. Many lenders require a copy of your transcript or diploma as proof of graduation.
- Make up to four years of on-time repayments. Most lenders require you to make 12, 24, 36 or even 48 months of consecutive, on-time repayments before you qualify.
Keep in mind that just barely meeting these requirements can translate into higher APRs and less favorable terms on your loan.
Refinancing your student loans to release a cosigner
You may want to refinance if you don’t qualify for cosigner release or if your student loan doesn’t come with it.
In practice, refinancing your loan isn’t that different from actual cosigner release, since many lenders require you to prove you can qualify for your loan on your own. You’ll still need to have excellent credit to get good rates, but you’ll also be able to choose a lender that best fits your needs.
Compare student loan refinancing options
Pros and cons for the student
- More financial independence. Taking the training wheels off your student loan is a great way to learn about how to handle large amounts of debt for the future when you want to buy a car or house.
- More personal independence. Having a financial debt to a family member or friend can cause tension at the very least — and at best feel like you owe them. Releasing your cosigner can do wonders for your relationship.
- Less risk of automatic default. That’s right. In 2014, the CFBP found that most private student loan contracts contained a clause that said the loan would automatically default if the cosigner died or filed for bankruptcy. Others contained clauses that triggered automatic default if cosigners fell behind on another loan. It’s unclear how common these clauses are today.
- You’re on the hook for repaying your loan. You won’t be able to miss repayments and have another person be legally obligated to come to your rescue.
- Could make your loan more expensive. Some lenders completely re-evaluate the terms of your loan based on your financials when you apply for cosigner release, meaning that you could end up with a higher rate and even fees after you release your cosigner.
- Could temporarily hurt your credit. If your lender requires you to meet credit requirements, you’ll have to undergo a hard credit check, which could briefly damage your credit score.
Pros and cons for the cosigner
- You control your credit. Your credit score isn’t at risk of tanking because of a poor financial decision the primary borrower made. You’re in total control now.
- You can cosign other loans. If you have another child about to start school and needs a cosigner, getting released from this one can free you up to help them get the funding they need.
- You can qualify for more types of credit. Once you’re taken off of a student loan, your debt-to-income ratio could significantly drop, possibly making you eligible for mortgages, credit cards and car loans you could only dream of before.
- Less credit mix. Having different types of accounts on your credit report makes up 10% of your FICO score. Removing yourself as a cosigner means you have one less type of account on your report, which may cause your credit score to drop slightly.
- You might feel guilty. Chances are, you’re cosigning a loan for a child or family member that you care about and want to succeed. If they apply for cosigner release before they’re ready to qualify for a good deal, you might be setting yourself up for some serious guilty feelings at the very least.
- You might not be totally off the hook. True, you aren’t legally obligated to help out with paying off that student loan. But that doesn’t mean that you won’t be asked to help out if things get rough. If you feel guilty, chances are you’ll end up paying off that debt anyway.
Checklist to prepare for being the only borrower on your student loans
Once you’ve taken your cosigner off your loan, you’re on your own. Here’s what you can do to stay on top of your finances.
- Keep track of your spending.
Stick to a budget and make sure you have enough funds to cover your student loan repayments and other necessities (like rent, electricity) to avoid coming up short when your repayments are due.
- Understand how your credit score works.
Maintaining good credit is important if you ever want to qualify for a credit card, mortgage or other type of credit in the future. However, it’s hard to do that unless you know how credit scoring works and what to watch out for.
- Know when to consolidate.
Keeping track of several different bills can become time-consuming. If you aren’t organized, you can even accidentally miss a few payments. If you find yourself struggling to make on-time payments, consider taking out a debt consolidation loan to combine all of your debts into one.
Cosigner release isn’t an option for everyone, but if you can qualify it can help you lead a more financially independent life and free up your cosigner to take on other types of credit. You’ll generally need to have excellent credit and a strong, steady income to get approved. Or, you might want to consider refinancing your student loans into your own name.
Read our guide to student loans to compare lenders and find the best loan for you, as well as alternative ways to pay for college.