How to remove a co-signer from a student loan by refinancing
Private student loans can fill a funding gap for students who need to borrow to pay for a degree. According to MeasureOne’s Private Student Loans Report, 91.25% of undergraduate loans were co-signed in the 2020-21 academic year.
Have a co-signer can make it easier to qualify for private student loans when you don’t have enough credit history to be approved on your own. However, becoming a co-signer can have financial implications for the parents or guardians since they are also responsible for the debt. The good news is that there are ways to ease the financial burden on your parents if they co-sign on your behalf.
If you’re ready to pull out your student loan co-signer and travel solo, here’s what you need to know.
Can I remove a co-signer from my student loan?
In short: Yes, you can remove a co-signer from your student loans. And there is a simple option: refinance.
“It’s not too difficult to pull a co-signer on a student loan, but you will have to refinance,” added Daniel R. Hill, chartered financial planner and president of Hill Wealth Strategies in Richmond, Virginia. “Also, refinancing is not difficult, but it can take some time.”
Refinancing student loans could be a good option when co-signed loans are owed by loan officers who do not offer co-signer release. Co-signer release may allow you to withdraw a co-signer from your private student loans after you have made a set number of consecutive payments.
Student loan refinancing simply means replacing existing loans with a new private student loan. The proceeds of the new loan are used to repay the old loan (s). In the future, you will make payments only for the new loan. Refinancing student loans is different from consolidating them. If you owe federal student loans, you can consolidate them into one new federal student loan. It might streamline your monthly payments, but it wouldn’t lead to lower rates.
If you have a private student loan that you are considering refinancing, you can still use the Credible Multi-Lender Marketplace. With a private student loan refinance, all you have to do is fill out a form to compare the rates and access options of several lenders.
How to remove a co-signer by refinancing
If you want to refinance private student loans to take out one or both parents as a co-signer, there are a few things to keep in mind.
One of the most important things to consider is what your refinancing needs are, Hill said. Specifically, it means knowing how much you can realistically afford to pay and how long a loan term is viable for your budget. “There are different options your lender can talk to you about, so make sure you share your financial situation fully,” he said.
If you are ready to research refinance loans, start with check your credit reports and scores. Most private student lenders will check your credit as part of the application process. You can compare your scores to the minimum credit score requirements with different loan services or lenders to see how likely you are to qualify.
Next, determine if it makes financial sense to refinance student loans. A student loan refinance calculator can help you estimate how much money you could save on interest. It can also help you assess what your new monthly payments might be.
Finally, check your rates with different lenders before selecting a loan to see how much you could pay, depending on the loan amount you want, the length of the loan, and your credit history. Shopping around is a smart personal finance decision when looking for the best refinance loan option. You can visit Credible to compare the rates of several lenders without affecting your credit.
Pros and Cons of Refinancing a Student Loan
Refinancing private student loans can offer several benefits to you as a borrower and to your parents if they have co-signed.
- Removal of the co-signer: One of the main benefits of refinancing school loans for parents is being able to opt out of the loan as a co-signer. If you take out a new student loan in your name only, your parents would no longer be responsible for your student loan debt.
- Lower interest rates: On the borrower side, choosing to refinance student loans could allow you to take advantage of lower rates. This is a great benefit of refinancing a student loan if you want to save money in the long run. With interest rates close to historic lows, now may be the time to consider student loan refinancing if your focus is on savings.
- Lower monthly payments: Refinancing student loans could also make it easier to repay loans if it results in lower payments each month. This can be interesting if you are just starting your career and are not making a lot of money yet. Lower payments may be easier to manage within your budget.
If you have private student loans and are looking to refinance, shop on Credible for rates and lenders.
On the other hand, loan refinancing does not always make sense.
- You could lose coverage if you have federal loans: Refinancing federal student loans to private student loans would cause you to lose certain protections, such as grace periods, forbearance benefits, and the ability to choose an income-based repayment.
- You may have difficulty qualifying: It is also important to keep in mind that refinancing loans generally requires a sufficient credit history. If you are new to using and creating credit, you may have more difficulty qualifying for a loan refinance.