Refinancing Student Loans With A Co-Signer

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  • Refinancing Student Loans With A Co-Signer
Author: Joseph Reinke, CFA

There are two primary reasons for refinancing student loans with a co-signer.  In this article we discuss both in more details and share a few other pointers.

Table of Contents

  1. Reason 1: Qualifying
  2. Reason 2: Interest Rate
  3. When Will A Co-Signer Make A Difference?
  4. Co-Signer Release Option

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.  The three application mistakes we see most often are:

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.  However, your co-signer will now be liable for the loan.  There is information you need to know about the liability element which we discuss a little later on.

FitBUX Student Loan Refinance Give Away

Reason #2: Interest Rate

The second reason for refinancing student loans with a co-signer is to get a lower interest rate.  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 “risky” by the lender. Therefore, you may be able to get a lower rate.

The “quality” 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.  However, there are two general rules:

  • Your co-signer’s credit score needs to be higher than yours,
  • Your co-signer’s 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.  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.  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.  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. I’ve seen a lot of parents say no to co-signing because they didn’t want the liability. However, once they found out about the release they were willing to co-sign.

By Joseph Reinke, CFA, Founder of FitBUX

Joseph Reinke, CFA

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About the Author

Joseph Reinke is a Chartered Financial Analyst (CFA) Charter Holder and founder of FitBUX which has helped over 14,000 young professionals on their journey to financial freedom. Joseph has been personally investing since he was 12 years old.

In addition, he has experience in student loans, mortgages, wealth management, investment banking, valuation, stock trading, and option trading. He has been on 100s of podcast and has been invited to 100s of universities to discuss financial planning with their soon to be graduates.

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