Most private lenders advertise cosigner release programs. The advertising pitch is usually all the same… sign up with our loan, get a cosigner, and then when your credit is good we will “release” the cosigner from the loan.
It is an effective sales pitch, because it encourages cosigning for loans. It makes it seem like a short-term obligation to the cosigner. The lender gets more security with the loan and the borrower can usually get a lower rate.
Fast forward a few years. The borrower has been making routine payments, has a good job, and files the paperwork to release the cosigner. A few weeks later a letter arrives… DENIED. How does this happen? What can be done to address this issue?
Why is it so hard to get a cosigner release?
Put simply, there is almost no incentive for the lender to release the cosigner. Think about it. They get absolutely noting. A loan that two people were once legally obligated to pay back is now a loan that only one person is responsible for. The lender doesn’t make any extra money, they have to do extra paperwork, and when it is all done, it is at a higher risk of never being collected.
The only real incentive for the lender to grant the cosigner release is because denying all of them would be fraud. As a result they will set the credit requirements for a release extremely high.
What you can do if you have been denied a release
The simplest answer is to make more money and get a better credit score. That is the approach most lenders would suggest. Unfortunately, here in reality were most borrowers live, there is no simple switch that can be flipped to make more money.
Option 1: Grind it out
If your heart is really set on a cosigner release, there are some things you can do to be proactive. Step one would be to call your lender to get details on why specifically you were denied. They will likely say your income relative to your debt was too low, or some other generic statement like that. Press for details. If you can get hard numbers in writing, then you can set a specific goal. Reach the numbers your lender set for you, and they will have to approve it.
Something to keep in mind is that each time you apply, your lender will have to do some investigating into your financials and qualifications. Obviously, this isn’t ideal for you because it results in a pull of your credit score, but it is also tedious for your lender. The more man hours they have to devote to this process, the more worthwhile it will become to them to release your cosigner. Finally, with each passing year, your balance will be decreasing. The lower the balance, the easier it should be to get a cosigner release.
Option 2: Make a scene
The only incentive for a lender to grant a cosigner release is to honor their advertising from when you first signed up for the loan. If you have a great credit score and income and feel like you got cheated, spread the word about it. Leave reviews for the lender saying you signed up for this loan and feel the cosigner release program is terrible. Share your story. You will be doing other people a favor, and if your are loud enough, you make catch the attention of your lender.
Along the same lines, you could file a complaint with the consumer financial protection bureau. By doing this, you make a record with the federal government AND you force your lender to respond to your particular application. If you are deserving but still getting denied, going this route could bring the attention you need to your application.
Option 3: Hit your lender where it hurts the most
Student loans are most profitable when borrowers make minimum payments and pay a ton of interest over the life of the loan. The worst thing you could do to your lender is to take your business elsewhere.
While paying off the loan in full may be a far off dream, refinancing or consolidating your loan with another company could be a great option. When you consolidate, your new lender pays off your loans in full with your old company. You can sign up for a new loan with your good credit, lock in a lower rate on your own, and free your cosigner. If you are interested in going this route, be sure to check our or full list and reviews of student loan consolidation companies.
There are lots of other lenders that will happily refinance a loan in order to get a new customer:
|Pros:||SoFi is the only lender who will help a borrower find a job, and they routinely have the lowest rates offered.||LendKey works with a large network of smaller credit unions and banks. As a result, many applicants get the best offer from LendKey.||Splash has the best new customer bonus right now, and they have unique 8 and 12 year repayment terms.||Because ELFI is backed by a bank rather than investors, ELFI rates tend to stay low and fluctuate less than others.|
|Cons:||SoFi has grown into a large company offering mortgages, personal loans, and investment services. They no longer focus entirely on student loan refinancing.||Going the LendKey route does require working with a local bank or credit union. For many, this is a plus, but it is an extra step.||Splash is a newer lender and the longest length loan is 15 years instead of the industry standard 20.||ELFI is one of the newest lenders in the marketplace. As a result we have limited head to head information.|
The best route
Your best play might be a combination of the above options. If your lender views you as borderline for cosigner release and you have the opportunity to chat with them on the phone, suggesting that you will take your business elsewhere could be enough to get them to give you the release you desire. Similarly, if your lender is giving you the runaround and you can’t get a straight answer or the information you seek, a strongly worded letter or email suggesting that you will be leaving negative reviews or filing a complaint could get positive results.
If you keep your cool, remember the motivations of your lender, and explore all your options; you will put yourself in the best possible position to get your cosigner released from your student loans.