Learning how to remove cosigner from student loan is something most college and university students consider.
With the rising costs of post-secondary schooling, most students will need a cosigner to receive student loans.
However, there may come a time when a cosigner is no longer needed, which is when you should look to remove them.
What Is a Cosigner?
When you apply for a student loan, you are borrowing a large sum of money from a financial institution.
Since the money is borrowed, the catch is that it will need to be paid back at a future date.
For most students, you will begin paying back your loan once you have graduated.
When borrowing money from a bank, the institution needs to ensure that the loan will be repaid in full.
One of the ways they do this is to allow their applicants to add a cosigner to the loan to help guarantee repayment.
Typically, your cosigner will be an adult with above-average credit and will be a “backup” in the event you default on your payments.
Why Do I Need a Cosigner?
Aside from a cosigner giving banks peace of mind that their money will be returned, there is another reason why they are necessary.
Most student loans are credit-based, which means the bank will run your credit before loaning you money.
As a student, you likely don’t have a credit history yet, and if you do, it’s probably not long enough to be considered.
Without someone with an extensive credit history, you will be less likely to be considered to receive the money you need.
Interestingly, student loans are not the only type of loan you may encounter in the future that requires a cosigner.
Buying a vehicle or home are two other instances where you could need the help of someone with a strong credit history.
How to Remove Cosigner from Student Loan
With a better idea of how a cosigner can help, there are instances when you might want to remove them.
They are undoubtedly helpful when getting your loan, but they should not be responsible for your debt forever.
In these instances, you will want to ensure you have the type of loan that makes it simple to remove any cosigners.
There are two main ways that you can begin the process of releasing a family member from being your cosigner.
The first and most popular is through your lender, and the second is through refinancing your loan.
Let’s explore both options in further detail.
How to Remove a Cosigner Through Your Lender
One of the most important things to look for when signing up for a student loan is whether your bank offers a cosigner release.
A cosigner release allows you to remove anyone who signed your loan with you at a specific point during your term.
For most loan agreements, you could be eligible for a cosigner release between 12 or 24 months after borrowing.
It’s important to note that every lender has its own list of requirements to be eligible for a cosigner release.
For example, you will likely need to have a history of making a certain number of on-time loan repayments.
Also, some lenders require the borrower to be credit-worthy before being able to release their cosigner.
Loans with this option allow you to remove any different names from your loan easily so that you are solely responsible.
However, it can be slightly more challenging if you don’t already have a cosigner release in your agreement.
What if I Don’t Have a Cosigner Release?
If you are one of the many students with loans that don’t have a cosigner release, you’ll have to speak to your bank.
Typically, if you are in good financial standing, they will be willing to work with you and allow you to remove cosigners.
However, you will likely have to prove your financial reliability through regular loan repayments and maintaining a good credit score.
There’s no doubt that this process can be challenging, as banks aren’t likely to provide assistance if you’re high risk.
Each lender has plenty of room to deny cosigner release applications for several reasons, mainly credit-related ones.
It is important to note that although having a cosigner benefits you, it doesn’t directly benefit the bank.
Opting to get a cosigner release through your bank can be worth the effort if you are happy with your loan agreement.
For example, if you have a low, fixed interest rate, you might want to stay with the same lender to save money.
Alternatively, your bank might offer extra perks that you won’t be able to find elsewhere.
If there is nothing specific keeping you with your current lender, there is an alternative option for a cosigner release.
Instead of hoping the bank allows you to own your loan solely, you can choose to refinance.
How to Remove a Cosigner with Refinancing
Refinancing loans is something that every student considers at one point or another.
If you find a lender with low rates and many benefits to take advantage of, refinancing might not be necessary.
However, more and more students are opting for loans with few benefits when better served elsewhere.
Loan refinancing allows you to find lower interest rates, work with different banks, and unlock better perks.
For example, you might be able to find a lender that allows you to pay your loan off early without penalty.
When refinancing, there is the possibility to remove your cosigner before you apply for your new loan.
The Benefits of Refinancing
Aside from the apparent lower interest rates and better perks, there are many other advantages to refinancing.
First, applying and getting approved for a new loan is often simpler than applying for an in-school student loan.
You will already have a financial history of paying your loan back with a previous lender, which works to your advantage.
Also, the majority of financial institutions that offer refinancing work with average credit histories.
Still, there will be requirements that you must meet, such as a job and a degree.
It’s always important to read the fine print about specific loans before settling on a particular lender.
How Does Loan Refinancing Work?
The process of acquiring a refinanced loan with a different lender is relatively straightforward.
When you find a bank you want to work with, you come up with an agreement to pay off the existing amount of your loan.
Within this agreement, you will be signing up for a new term as well as your new interest rates.
Once you become a client, your new bank pays off your loan and takes on the debt.
You will then be responsible for repaying the total borrowed amount to the new lender.
During this process, you will have the opportunity to remove your cosigner, as they are not automatically fixed to your new loan.
Refinancing your student loans can be significantly beneficial for the cosigner you had on the previous agreement.
Remember, the cosigner’s name is on the old loan with your old bank.
Once your new bank pays off your existing loan, it will appear “paid in full” on your cosigner’s financial history.
Alternatives to Removing a Cosigner
Depending on your financial situation, you might not be in a position to remove a cosigner from your loan.
In these instances, there are a couple of alternatives you can turn to.
Switching Cosigners
It’s challenging to find family members willing to remain a cosigner on your loan, especially if the borrowed amounts are high.
Instead of relying on the same person for an extended period, you could consider switching cosigners.
You might find specific individuals might need to be removed to help their financial records in certain situations.
For example, switching cosigners is helpful if your parents are buying a new house and need to have less debt to their name.
Some financial institutions will allow their customers to substitute cosigners as long as the new cosigner has an excellent financial history.
On the other hand, some are a little more hesitant when making any changes to your agreement.
Paying Off the Loan
The most apparent option you have when removing a cosigner is to pay off your loan in its entirety.
With that said, this is not a possibility for most students, especially if you need to remove cosigners ASAP.
When you pay off your loan, the agreement will be fulfilled, and as such, all names associated with the loan are removed.
If this is the route you are interested in taking, you should look up budgeting tips to help pay off your student loans.
By making a few tough financial decisions and sticking to a minimal budget, you can remove your debt quickly.
Not only will you be able to remove cosigners from the agreement, but you will also have peace of mind.
Final Thoughts
Knowing how to remove cosigner from student loan is something every student should look into.
Although your family is always there to help, you won’t want them to take on financial responsibility forever.
Whether you work with your bank to receive a cosigner release or refinance, options are available.
