There are two primary reasons for refinancing student loans with a co-signer.ย In this article we discuss both in more details and share a few other pointers.
Reason #1: Qualifying
The first reason for refinancing student loans with a co-signer is to qualify if you have tried to refinance on your own and were declined.
However, before adding a co-signer you may have be declined because of a mistake.ย The three application mistakes we see most often are:
- A miscommunication about the documents needed between you and the lender,
- You went to the wrong lender and a better one may fit you based on your qualifications (check out our 8 best student loan refinance companies article to find out more about qualification standards at each company), and
- You may have gotten declined but there are steps you can take to get you qualified on your own in 2 – 3 months such as improving your credit.
Note: If you need help with the above, you can use FitBUX’s free student loan refinance service.
If you exhausted these options, then adding a co-signer may give the student loan refinance company the comfort to give you the loan.ย However, your co-signer will now be liable for the loan.ย There is information you need to know about the liability element which we discuss a little later on.
Reason #2: Interest Rate
The second reason for refinancing student loans with a co-signer is to get a lower interest rate.ย For instance, if you just graduated and have a limited credit history, you may not get a great rate with a lender that relies heavily on credit data when making an approval decision.
However, if you add a co-signer, such as a parent, with a well-established (and good!) credit history, you will be considered less โriskyโ by the lender. Therefore, you may be able to get a lower rate.
The โqualityโ of the co-signer matters greatly. We discuss these characteristics below.
When Will A Co-Signer Make A Difference?
As previously mentioned, each student loan refinance company is a little different.ย However, there are two general rules:
- Your co-signerโs credit score needs to be higher than yours,
- Your co-signerโs annual gross income should be higher than yours.
If your co-signer is retired, they will have to show significant retirement income for them to help you on the loan.
These are the general rules of when a co-signer will help. The reason they are rules is that student loan refinance companies will only look at one applicant for qualifications, you or your co-signer. They will not take combined incomes into consideration.
The two companies that make an exception to this is Splash Financial and Laurel Road.ย They a special spousal co-signer option. Using this option will allow you to use combined income on your application if you are married and use your spouse as a co-signer.
Co-signer Release Option
There are scenarios where co-signers are worried about being liable for a loan.ย Therefore, some refinance companies have added a co-signer release option to make things easier.
The co-signer release is a stated number of months of on-time payments. Once you satisfy that time period, you can apply to have the co-signer released from the liability. For example, a 36 month co-signer release means once you make 36 on-time payments you can apply to have your co-signer release from the liability.
This option varies for each student loan refinance company. Some may not offer it at all.ย If you are thinking of using a co-signer, be sure to check our student loan refinance company reviews to see if they offer this.
Also, be sure to inform your co-signer of this option. Iโve seen a lot of parents say no to co-signing because they didnโt want the liability. However, once they found out about the release they were willing to co-sign.
