If you are a parent who has cosigned a student loan so that your child can go to school, odds are pretty good you want to have your name removed from that debt as soon as possible. Having cosigned debt on your credit report can make it harder to buy a new home or car, and the debt can linger on for decades.
The bad news is that there is no easy way to get your name removed from the debt. The good news is that there are a number of options that can help you accomplish your goal.
Route 1: The Cosigner Release
Many lenders like to advertise how great their cosigner release program is. Often, these programs are advertised to ease the concerns of people considering cosigning for a loan. Unfortunately, chasing after a cosigner release can often end up in rejection.
The primary problem with cosigner release programs is that the banks and lenders have every incentive to deny the request. With a cosigner on the loan, if the borrower fails to make payment, they have someone else legally responsible for the debt. If the cosigner is released and the borrower fails to pay, the bank is out of luck. The lender gains nothing by approving the release, but loses a bunch. In many ways the cosigner release is a myth.
Route 2: Consolidation/refinancing
When a lender won’t release you from the loan that you cosigned, taking your business elsewhere may be the best bet. There are a number of companies offering student loan refinancing services. Not only can you get released from the loan, but the primary borrower can also lock in lower interest rates and lower payments.
While the idea of taking your business elsewhere is appealing for a number of different reasons, it isn’t for everyone. For starters, most student loan consolidation companies have pretty strict underwriting criteria. If the borrower trying to consolidate has a low income or credit score, this option could be off the table.
The good news is that these lenders want new business and getting approval via this route is probably a bit easier than getting the original lender to release the cosigner.
If credit score or income present a challenge…
Route 3: The long haul…
When the primary borrower doesn’t have a solid credit score and income, getting released as a cosigner is nearly impossible because no lender will be willing to accept the risk.
Even though things are more difficult in this situation, it doesn’t mean the cosigner is stuck on the loan until it is paid off. Smart credit and debt management can turn a consolidation rejection into an acceptance.
Lenders are primarily concerned with two numbers, the borrower’s credit score and debt-to-income ratio. Both of these numbers can be improved over the course of a couple months or years. If the credit score is a problem, pulling your credit report and fixing any errors can be a relatively quick fix. Avoiding any late payments can also significantly improve things.
Improving a debt-to-income ratio doesn’t always require a raise. This number can also be improved by eliminating any monthly debt. If a car is paid off, or a single student loan is eliminated, the debt-to-income ratio will improve. If the borrower has any debt with a high monthly payment, but a low total balance, paying off that particular debt can result in a dramatic improvement to the debt-to-income ratio.
Improving these financial numbers isn’t easy, but with some effort and dedication it can be done. Once the numbers have improved, revisiting Route 1 and 2 becomes a viable option.