How to refinance a student loan with a co-signer

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If you have student loans but don’t have the best credit history, you can refinance with a co-signer to potentially get a lower interest rate. Learn more. (iStock)

When you refinance your student loans, you usually get a lower interest rate. But it can be difficult to get approved on your own, especially if you have no credit or bad credit. This is where a co-signer can help.

Here’s what you need to know about refinancing student loans with a co-signer.

With Credible, you can quickly and easily compare student loan refinance rates.

What is a co-signer?

A co-signer is someone who applies for a loan from the primary borrower, usually a friend or family member. If your co-signer has a good credit rating and a solid income, they can help you get approved or get a lower interest rate or better terms.

But being a co-signer involves certain risks. If you do not repay your loan and are unable to make payments, your co-signer will be responsible for repaying the loan.

Co-signer vs co-borrower

While co-signers and co-borrowers both have a legal responsibility to repay a loan, they are not the same. A co-signer helps a primary borrower qualify for a loan and agrees to only repay it in the event of default.

A co-borrower, on the other hand, is also responsible for making regular payments with you upfront. While co-borrowers benefit from sharing the ownership of the loan asset (like a married couple buying a house together), co-signers have no ownership rights.

If you need to qualify for a private student loan, for example, getting a co-signer like your parent may be your only choice, especially if you don’t have the credit to qualify on your own. With student loan refinancing, your co-signer helps you get a better interest rate.

What lenders look for in a co-signer

While each lender has their own requirements, most look for the following in a co-signer:

  • Strong credit profileLenders prefer co-signers with a good or excellent credit score, usually between 670 and 850.
  • Low debt ratio – A debt to income ratio (your monthly debt payments divided by your gross monthly income) of no more than 36% will make your co-signer stand out.
  • Sufficient income – It is important that the co-signers have enough income to repay a loan if the primary borrower does not.
  • Steady job – Lenders like to see co-signers with strong employment history as this can be a sign of consistent and sufficient income.
  • Stable residence – Some lenders view co-signers who have lived in the same place for several years more favorably than frequent movers.

How to refinance a student loan with a co-signer

The process for refinancing student loans can also vary depending on the lender. Typically, you will need to follow these steps:

  1. Do your research. Lenders vary, so be sure to compare co-signer rates, terms, fees, and eligibility so you can make the best decision for your particular situation. Not all student loan lenders allow co-signers.
  2. Find a co-signer. Not only should a co-signer have good credit and income, but they should be easy to reach in situations where you need to discuss the loan. Think about who you know that would make a good co-signer. Then ask them if they are interested and make sure they are comfortable with this responsibility. Remember that your co-signer must repay your loan in the event of a default. Asking someone to co-sign is a big deal, so choose carefully.
  3. Gather the necessary documents. You will need to provide the lender with personal and financial documents for you and your co-signer. These can include government IDs, W-2 tax forms, and pay stubs.
  4. Complete the request. Then ask for the refinance. Make sure that all of the information you provide for yourself and your co-signer is complete and correct, and submit all requested documents.
  5. Sign the agreement. After approval, the lender will send you an agreement. You and your co-signer should review it carefully before signing on the dotted line. Make sure you understand your repayment terms and ask the lender if anything is unclear.
  6. Pay off your refinanced student loans. Keep in mind that even if your co-signer accepts responsibility for your loans, you will ideally pay them off without their help.

Is refinancing my loans right for me?

You may want consider refinancing a student loan for a number of reasons, including:

  • You can potentially get a better interest rate and better terms, which will make it easier for you to pay off your student debt.
  • If your finances have improved because you paid off other debts or got a raise, for example, refinancing might make sense.
  • Refinancing may be worth it if you have a variable interest rate student loan and want to refinance at a fixed rate so that your payments are more predictable.

Refinancing may not be right for you if you have federal student loans. Refinancing federal loans to a private loan will cause you to lose federal benefits and protections, such as loan cancellation and income-oriented repayment plans. In this case, you may want to consider consolidating your federal loans with a direct consolidation loan. It won’t lower your interest rate – your new rate will be a weighted average of all your existing loans – but it can help simplify your monthly payments.

If you’ve decided that refinancing with a co-signer is right for you, check out Credible to compare refinancing rates from various lenders in minutes.

Advantages and disadvantages of having a co-signer

Before refinancing your student loans with a co-signer, consider these advantages and disadvantages.

Benefits of refinancing with a co-signer

Disadvantages of refinancing with a co-signer

  • May affect the credit of your co-signer – If you miss your loan payments, your co-signer ‘s credit may take a hit.
  • May harm your relationship with your co-signer – You could tarnish your relationship with your co-signer if you don’t repay your loan and put the blame on him.
  • The co-signer version is not always available – Since not all lenders offer a co-signer release option, your co-signer can be tied to your loans for the entire repayment term, unless you refinance them yourself with another lender.

Can I release my co-signer?

With the release of the co-signer, you can eventually withdraw your co-signer from your loan. Whether or not this option is available to you depends on your lender.

While some lenders allow a co-signer release after a certain period of time, such as 24, 36, or 48 months, others do not offer it at all. Despite the potential for release of the co-signer, your co-signer should be prepared to be responsible for the loan in its entirety.

Credible allows you compare student loan refinance rates in minutes.

Alternatives to a co-signer

If you can’t find someone open to co-signing or don’t want to go this route, here are a few alternatives to consider:

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