For many families, cosigning student loans is a necessity to fund a college education. Most college freshman lack the necessary credit history to qualify for student loans, especially private student loans on their own. Most commonly, parents will cosign for their children’s student loans. Companies like Sallie Mae and Wells Fargo advertise cosigner release programs for proscriptive borrowers.
What does it mean to cosign a loan?
For those not familiar, cosigning a student loan means that the cosigner will be responsible for the debt if the borrower fails to pay on the loan. The debt shows up on the cosigner’s credit report even if the borrower has made all of their payments on time.
What is a cosigner release?
A cosigner release is an option that lenders make available to borrowers. If a borrower makes their student loan payments on time, typically for a year or two consecutively, and they pass the lenders test for creditworthiness, the cosigner can be released from the loan. Releasing the cosigner means that they will no longer be responsible if the loan defaults and that the loan will no longer appear on their credit record.
What is the purpose of a cosigner release?
The cosigner release option is an incentive, created by the lenders, for parents or other relatives to cosign on student loans. Because cosigning a loan is such a big commitment, people like to know that the possibility exists to remove the commitment. In fact, many companies advertise cosigner releases as a reason to pick their loans. Sallie Mae even suggests that perspective borrowers, “remind [their] cosigner about Sallie Mae’s cosigner release” when they are asking someone to be a cosigner.
A cosigner release is great for the cosigner for two reasons. First, it removes the possibility that they could ever be responsible for paying for the loan. Second, it removes the loan from their credit report. Even if they are not the person expected to pay off the loan, the debt can adversely affect their debt to income ratio for major purchases… and a bad debt to income ratio means higher interest on a mortgage or auto loan or it could mean no loan at all.
How do I qualify for a cosigner release?
This is something that will vary from lender to lender. Lenders will typically want a history of on time payments for about two years. Some require less, others more. The borrower will also have to be independently creditworthy. This means that even if payments are made on time for two years, a release is not a sure thing. The borrower will need to show a decent income, as well as a favorable debt to income ratio.
Qualifying for a cosigner release can be difficult, but there is a workaround that is very effective.
Will my lender release my cosigner?
This is evaluated on a case by case basis. Unfortunately, there is no way of knowing for sure until you try. It is important to keep in mind that there is little incentive for the companies like Sallie Mae and Wells Fargo to release the cosigners. When they release a cosigner, it just makes the debt harder to collect in the event of non-payment of a loan. As a result, if they have a reason to deny the release, it is in their best interest to do it. The primary reason for them to ever release anyone is to keep their word and remain to true to the advertising that was done in order to get someone to sign up for the loan.
If the lender refuses to release the cosigner, moving to a different lender might do the trick. In a student loan refinance the old loan is paid off in full and replaced with a new loan. If the borrower gets the new loan without a cosigner, the original cosigner is effectively released.