It seems like quite the conundrum: you’re struggling to pay off your debt and know that refinancing your student loans could help. But because you’re a recent college graduate, you don’t have an established credit history, so you can’t qualify for refinancing on your own. But there is a solution – refinancing with a cosigner could solve your problem! There are major benefits to refinancing student loans with a cosigner. First off, you’re more likely to qualify for a loan than if you applied by yourself. And because your application has a cosigner, you may get a lower rate on your loan. However, it’s important to note that cosigning a loan is a big responsibility, so you’ll need to ensure you and your cosigner are both on the same page before taking out a loan.
Can You Refinance Student Loans with a Cosigner?
Whether you’re a recent graduate or have a less-than-perfect credit score, it can be difficult to refinance your student loans by yourself. Lenders usually require that borrowers have stable sources of income and relatively high credit scores. If you don’t meet the lender’s requirements for refinancing student loans, you risk being denied for student loan refinancing. But don’t get discouraged. Most lenders allow borrowers to apply for student loan refinancing with a cosigner, which can strengthen your loan application. A cosigner is someone who takes on the responsibility of repaying your loan if you’re unable to. Ideally, your cosigner should have a good credit score and steady income. The better their credit, the more likely you will get a competitive interest rate loan. A cosigner can be a parent, relative, or even a good friend that is willing to help you. But the cosigner has to apply for a loan with you as the primary borrower; cosigners can’t refinance student loans alone.
4 Steps to Refinancing Student Loans with a Cosigner
The process to refinance your student loans with a cosigner is simple. You and your cosigner can apply entirely online in a matter of minutes. To get started, follow these four easy steps:
- Compare Lenders
- Find a Cosigner
- Gather the Necessary Documents
- Apply for Student Loan Refinancing
1. Compare Lenders
When it comes to refinancing education debt, it pays to shop around. Rates, terms, and loan repayment options vary between lenders, and each lender will have its own eligibility requirements and cosigner policies. Requesting quotes from multiple companies will allow you to compare student loan refinance lenders and make an informed decision. Some key factors to look for include:
- Cosigner release policies: Some lenders will allow you to apply for a cosigner release and remove the cosigner’s responsibility for the loan after you make a certain number of monthly payments on time.
- Hardship policies: If you lose your job or become seriously ill, some lenders — such as ELFI — have financial hardship programs that allow you to temporarily postpone your payments while you recover and get your finances back on track.
- Interest rates: Some lenders offer fixed and variable interest rates, while others only offer fixed-rate loans. When comparing offers, make sure you understand your loan’s type of interest rate and how it will affect your total repayment cost.
2. Find a Cosigner
If you need a cosigner and aren’t sure who to ask, think about the people in your life that you’re close to, that are employed full-time, and that are generally responsible with money. Finding a cosigner other than a parent may seem challenging, but a cosigner can be anyone with a steady income and good credit; it can be an aunt, uncle, grandparent, cousin, or friend. When talking to a loved one about cosigning to refinance a student loan, it’s important to be honest about the risks and rewards involved. Cosigners share responsibility for repaying the loan; if you can’t make payments on the refinanced student loan, your cosigner will have to take over, and the loan can affect their ability to pursue their own goals. To make sure they’re comfortable with cosigning the loan, talk to them about your career plans, monthly budget, and how you intend to repay the loan.
3. Gather the Necessary Documents
Once you’ve found someone to cosign the loan, you can prepare to apply. Most lenders will require you and your cosigner to complete separate applications, and you’ll both need to provide the following information:
- Contact information
- Social Security numbers
- Driver’s license or other identification
- Pay stubs, W-2 forms, or previous tax returns as proof of income
- Employer contact information
- Current student loan account information and balance
4. Apply for Student Loan Refinancing
After getting quotes and choosing the right student loan refinance terms for your situation, you can move forward with the application process. Refinance lenders usually allow the primary borrower and cosigner to apply online, and the application takes just a few minutes to complete. The lender will prompt you both to enter information about yourselves, your income, and your student loan debt. The lender will also ask for your consent to perform hard credit inquiries. Unlike the soft credit check the lender may have performed during the prequalification process, a hard credit check differs from a soft credit inquiry because it can temporarily lower your credit score. It’s a good idea to limit the number of hard credit inquiries you have on your credit report, so make sure the refinance lender you choose is the right fit for you. After you apply, the lender will perform the credit check and review your information. If you and your cosigner are approved, the lender will work with your existing loan servicers to pay off your student loans. Once the other loans are paid off, you’ll have a new loan with one simple monthly payment.
Considerations Before Refinancing Student Loans with a Cosigner
Student loan refinancing loans can be in repayment for five to 15 years, so it’s important to understand the implications before agreeing to cosign a loan. Some considerations to keep in mind include:
For the Primary Borrower
- You are still responsible for repayment: From the lender’s perspective, the cosigner shares responsibility for the loan. However, the cosigner doesn’t take over the debt; you’re still legally obligated to make the payments by their due dates. Missing payments can wreck your credit and cause you to incur fees and penalties.
- Cosigning a loan can hurt your relationship: Before asking someone to cosign a loan, make sure you can comfortably handle the loan payments. Otherwise, you risk straining the relationship with the cosigner if you miss payments since it can affect their credit and finances.
For the Cosigner:
- Cosigning a loan is risky: You become responsible for repaying the refinance student loan if the primary borrower can’t or won’t make their payments. This could hurt your credit score, limiting your ability to qualify for a mortgage or car loan.
- Cosigning a loan can’t be undone: Once you cosign a refinance student loan, the lender may not allow you to remove yourself in the future. Even if the lender does offer cosigner releases, it can take years to qualify; the borrower has to make timely payments for several years and meet the lender’s income and credit requirements before it can be completed.
Alternatives to Refinancing Student Loans with a Cosigner
If you aren’t able to find a cosigner — or aren’t comfortable asking someone to take on that responsibility, there are some other options:
- Increase your income: If you can increase your income, you may be able to refinance more easily on your own. Boosting your income by getting a raise, freelancing, or taking on a side hustle can lower your debt-to-income ratio and make lenders more confident that you can afford your loan payments.
- Wait until you boost your credit: If you focus on building your credit score, you may qualify for refinancing on your own in six to 12 months. To increase your credit score, make all of your monthly payments on time, pay down existing debt, and avoid opening new credit accounts until after you refinance.
- Look for another lender: You could also refinance with a different lender who has more lenient requirements or one that offers loans to borrowers with lower credit scores.
- Follow the debt avalanche method: To tackle your debt without a cosigner or student loan refinancing, another option is to utilize the debt avalanche method. With this method, you pay off the highest interest rate loan first while making minimum payments on all other debts. Once your highest-interest loan is paid off, you move on to the next one with the highest rate and continue with this process until you’re 100% debt-free. The debt avalanche method allows you to save money by tackling the accounts with the highest interest rates first, and you’ll pay off your debt faster than if you stuck with a standard repayment plan.
Refinance Your Student Loans with ELFI
Refinancing your student loans with a cosigner can be an excellent way to manage your debt and save money. Adding a cosigner to your loan will help you qualify for a loan and get a lower rate so you can pay off your debt faster. With ELFI, you and your cosigner can apply for a loan, and repayment terms range from five to 15 years. You can choose between fixed and variable interest rates, and you can check your eligibility and potential rates without affecting your credit score. Use the student loan refinance calculator to see how refinancing can impact your monthly payments and lower your total repayment cost.
