What You Need to Know to Refinance Student Loans With a Cosigner

If you refinance student loans with a cosigner, you could find it easier to qualify and get lower interest rates than applying on your own.

Despite those benefits, it’s important to also carefully consider potential downsides of student loan refinance with cosigner backing. If you were to default on the new loan payment, your cosigner’s credit score would be in jeopardy as well. Plus, some lenders may not allow a cosigner to be released from a loan later, even after you’ve established a positive payment history and are able to manage the loan on your own.

Weighed the pros and cons and ready to move forward? Here’s what you need to know about student loan refinancing with a cosigner:

How to refinance student loans with cosigner support

The process of adding a cosigner to a loan is similar to applying for a loan, with a few added steps. Here’s the process to follow when you’re refinancing student loans with a cosigner:

1. Find a lender that allows cosigners on student loan refinancing

Not all lenders allow cosigners, so your first step should be to research various lenders’ policies. Ultimately, allowing a cosigner isn’t the only credential you should look for in a refinance lender — you want to be sure you’re able to get competitive rates that could actually help you save over the long term as well.

2. Get a cosigner on board to refinance student loans

Hopefully, you have someone in mind who meets the qualifications outlined above to be a good cosigner. You’ll need to ask this person if they’re willing to be your student loan cosigner, and make sure each of you understands the risks and responsibilities that come with cosigning before you agree.

3. Collect documents and information needed to apply

You’ll need to be ready with basic personal information for both you and your cosigner. Collect your Social Security number, employment information, financial information, monthly mortgage or rent payments and permanent address.

If your cosigner prefers not to share this sensitive personal information with you, that’s OK. They will just have to be involved in the application process to provide their relevant information as needed.

4. Compare student loan refinancing rates

Typically, the first step in applying for student loan refinancing isn’t a full application, but a credit check. Most lenders ask for preliminary information to perform a soft credit pull. This gives them a snapshot of your creditworthiness and allows them to provide you an estimate of the rates and terms for which you qualify. You can then compare the rates and terms offered by different lenders.

Whether you include a cosigner at this stage will depend on the lender you choose and how it handles the process of adding cosigners. Some lenders will ask to apply separately or jointly.

5. Apply for student loan refinancing

Once you’ve chosen an offer you like, it’s time to apply for student loan refinancing. Make sure you accurately provide all the information for both you and your cosigner. Provide any documentation of income or other financial records that the lender requests.

6. Sign the student loan refinancing agreement

If you’re approved for a loan, the lender will send you a final loan agreement laying out the terms of refinancing. This loan agreement will include your cosigner and outline their liability for the new student loan. Both you and the cosigner will need to sign and agree to the terms of the contract.

Either party can back out of the loan at any time before the primary borrower signs off on the final loan terms.

7. Repay the refinanced student loans with a cosigner

The first payment due date and monthly payment amounts will be outlined in the loan agreement. Once you and your cosigner have signed on the dotted line, you’ll begin making payments each month.

It’s important to remember that your cosigner isn’t just there for moral support — they’re legally responsible for repaying your loan if you default.

In some cases, you and your cosigner may choose to make repayment a joint effort. Make sure you both understand your agreed-upon repayment plan and schedule. This way, you can avoid someone accidentally missing a payment.

When lenders allow refinancing student loans with a cosigner

The specifics for refinancing student loans with a cosigner depend on the particular lender. Some lenders allow you to apply for student loan refinancing with a cosigner from the get-go; others allow you to reapply for a loan with a cosigner only after an initial rejection.

There are several underwriting factors lenders consider. Applying for student loan refinancing is often the only way to find out if you qualify on your own or need a cosigner.

Some refinancing companies, such as CommonBond, first process your refinancing application without a cosigner. If you don’t qualify on your own, these lenders assess your eligibility with a cosigner. Rather than reject your application outright, they might invite you to find a cosigner and reapply.

Other companies, such as PenFed, allow you to apply with a cosigner from the start, which can be helpful if you’re unsure you’ll qualify. Citizens Bank doesn’t require a cosigner, though it advises borrowers with little or no credit history to consider applying with a cosigner.

Some lenders also consider the higher of the two credit scores — yours and your cosigner’s — when setting interest rates, which helps you get the best deal for you on student loan refinancing. Adding a cosigner can also make sense if they’re someone you share finances with, such as a spouse.

What your lender looks for in a cosigner

Not only do you need to find the right lender, you also need a cosigner who is well-qualified and willing to sign with you.

To increase your chances of being approved for student loan refinancing and qualifying for your most favorable terms, your cosigner should meet the following standards:

1. Good credit

The most common reason a primary borrower might turn to a cosigner is bad credit or insufficient credit history.

Different lenders have different credit requirements for their primary borrowers and cosigners. However, you can assume that a cosigner with a credit score of 700 or above will probably offer you a better chance of landing the loan. They’ll also most likely qualify for more attractive rates.

2. Sufficient income

Many primary borrowers looking to refinance student loans with cosigner options are not yet established in their careers, which means their income might be too low or unreliable to qualify on their own. Lenders want to see that a cosigner has sufficient, steady income to pay off the loan if the primary borrower can’t make the monthly payments.

Your bank will ask for both of your pay stubs, among other documents, to determine your income and debt-to-income (DTI) ratio. If your cosigner makes a good living but already owes a great deal compared to their income, they might not qualify for the loan.

Your lender will calculate the DTI ratio, including the payment of the loan you’re applying for. Even if your cosigner doesn’t intend to make payments, the cosigned loan might push your cosigner’s ratio above the lender’s preferred DTI ratio.

3. Work and home stability

Lenders often want to see that cosigners have stable work and residence history. That means a cosigner who earns a high income but has frequently switched jobs might not be approved, since their work history may appear unstable.

Similarly, a cosigner who has lived in the same residence for five or more years will be looked at much more favorably than a cosigner who moves every two years. This stability is another reason why a cosigner can help a young primary borrower: Young adults just out of college likely haven’t had the time to build up a stable work or residence history.

Understand the risks for your cosigner

If you have a family member, spouse or parent cosigning a student loan for you, it may seem like the perfect solution to overwhelming student loan payments. However, there are potential problems that fall disproportionately on the cosigner.

That’s because cosigners share full responsibility for the loan with the primary borrower. As such, their liability for the loan can affect their own credit and DTI, for better or worse. It’s possible it could even keep them from qualifying for other credit since the cosigned loan appears on their credit report.

Furthermore, if the primary borrower doesn’t make consistent payments on the loan, the late or defaulted payments will negatively impact the cosigner’s credit score.

Releasing a cosigner after refinancing student loans

Considering the risks a cosigner takes on, some student loan refinancing companies have options in place to allow primary borrowers to eventually release their cosigners.

While a lender might allow the primary borrower to discharge their cosigner after a period of on-time payments, many other lenders require cosigners to remain jointly responsible with the primary borrower for the life of the loan.

It’s also important to note that even the banks that do allow discharging of the cosigner may still require the primary borrower to initiate the process.

How to decide if a cosigner is right for you

This situation comes with the potential to damage the financial standings of both you and your cosigner, as well as your relationship. As the primary borrower, you need to consider carefully before asking someone to cosign student loan refinancing.

In particular, make sure you have satisfactory answers to the following questions:

• Why do you need a cosigner? Do you need a cosigner because your credit score and money management skills are less than robust? That might be a warning sign that taking on a cosigner is a bad idea. It might be worthwhile to spend several months building your credit, so you can refinance on your own instead.
• How could this cosigned loan affect your relationship? Money issues have a way of souring relationships, and you’ll have to deal with uncomfortable relationship dynamics as well as financial stress if you have trouble making payments after someone has cosigned for you.
• What happens if either you or your cosigner passes away before paying off the loan? Cosigners on private student loans and privately refinanced student loans are typically (but not always) held responsible for the debt if the primary borrower dies. And if your student loan cosigner dies, your debt might automatically enter default. Make sure you and your cosigner are completely clear on what to expect should the worst happen.
• Are you comfortable communicating with your cosigner? If the person you’ve chosen as your cosigner isn’t someone you’d feel comfortable sharing personal financial details with, you might want to rethink asking them to cosign your loan.
• Do you need a cosigner for student loan refinancing? The low, advertised rates that lenders offer for student loan refinancing may only be available to some primary borrowers if they take on a well-qualified cosigner. However, borrowers need to recognize that asking a friend or family member to be a cosigner is a major commitment, and it doesn’t necessarily guarantee access to the best loan rates.

Use these questions to guide you through the decision of whether or not to pursue a student loan refinance with cosigner help. Have open and honest discussions about the process of cosigning before you refinance your student debt.

Make sure you and your cosigner enter into a loan with your eyes open and commit to honest communication with each other throughout repayment. While there are benefits to having a cosigner, it’s crucial for everyone’s financial health and relationship to be aware of the downsides as well.