If a borrower isn’t eligible for a student loan on their own, finding a cosigner could help them qualify or receive a more favorable interest rate. While becoming a cosigner may help a friend or family member to get the student loans they need, it’s important to understand what it means to cosign before you agree to help. As a cosigner, if the student doesn’t make their payments, then the responsibility of the loan will fall to you. If that happens, it may cause you to wonder, “can a cosigner refinance a student loan?” We’ll discuss the answer in more detail below.
Implications of Co-signing a Student Loan
If you find yourself as a cosigner on a student loan and are looking for options on how to handle the debt, it’s imperative to understand your financial responsibilities. Here are a few potential risks to consider before cosigning student loans:
- Responsible for Payments: One of the most important details to understand as the cosigner of a loan is that if the borrower is unable to make payments, it is your responsibility to continue them.
- Affects Credit Report and Score: When you cosign a student loan, it appears on your credit report the same way it would if it were a loan you’d taken out for yourself. Cosigning the loan can affect your credit score and debt-to-income ratio, which play a role in qualifying for additional loans, such as a car loan or mortgage.
- Less Control Over Debt: If you are asking, “can a cosigner refinance a student loan?” you may find yourself in a tough spot realizing that you have little control over the debt as a cosigner. Although you are responsible for making payments if the borrower doesn’t, many lenders will not allow the cosigner to refinance the student loan debt. However, it does not mean you are out of options.
Refinancing Student Loans
As a student loan cosigner, there are many reasons you may want to refinance, from working to improve your credit score to wanting to save money by qualifying for a lower interest rate. However, in most instances, it will not be possible for the cosigner to refinance a student loan on their own. That said, you may still be able to enjoy some of the benefits of refinancing student loans, even if the borrower can’t yet remove you from the loan. If the borrower cannot qualify for refinancing on their own, they may be able to refinance with you remaining the cosigner. This may be helpful if you, as the cosigner, are helping make payments and want to lower the monthly debt total. To get an idea of how much you could save by refinancing, check out ELFI’s Student Loan Refinancing Calculator.
Why Can’t Cosigners Refinance?
While it may seem like a great idea to offer cosigners the option of refinancing student loans, most lenders don’t allow that as an option. That’s because, when a borrower initially agrees to take on a student loan, they own the obligation to repay it, and therefore, the power to refinance it. If the original borrower fails to repay the loan, then the payment responsibility falls to the cosigner. Even still, the power to refinance the loan remains with the original borrower, because they ultimately “own” the loan.
Why Would a Cosigner Want to Be Removed?
In certain circumstances, some lenders may allow the borrower to apply to release the cosigner from the loan. In most circumstances, to release a cosigner, the primary borrower must demonstrate a certain number of on-time payments and a required minimum credit score. Why would a cosigner choose to be removed from a loan? Here are a few reasons:
- Concern about the potential impact to their credit score
- Need to lower their debt-to-income ratio
- Inability to make payments if the original borrower defaults on the loan
- Primary borrower is now able to repay the loan without a cosigner
Even if you’re in the process of requesting removal as a cosigner, it’s important to continue making payments until you have formally been released.
Talk to the Primary Borrower About Refinancing
If you’re interested in being removed as a student loan cosigner, talk to the original borrower about the benefits of refinancing their student loans. Understanding the potential to save on their monthly payments, lower interest costs, and pay off the loan more quickly may help them to determine the best course of action, and ultimately refinance the loan into their own name. By working with the primary borrower, you may be able to be released from the debt obligation and help them achieve a repayment structure that better meets their needs.
Start Your Cosigner Release by Refinancing Student Loans
If the borrower earns an income and has a good credit score, they may be able to refinance the loan into their own name and remove you as the cosigner. With ELFI, a borrower can prequalify for student loan refinancing and get a personalized quote in minutes to see their potential savings without impacting their credit score.*
