Denied Co-signer Release? - What to do now

You are denied a co-signer release and do not know what to do? Here are some of the options that you can choose from. This article discusses about co-signer release, the hardships involved in getting approved and how to overcome them.

Updated by Chinmoy Dutta on 24th February 2020

If you need a student loan, and your credit history is not that good, you are required to bring in a cosigner for your student loan. Mostly it is the private lenders that fuss over a cosigner if they do not like your credit score. The steps of which are to sign up for the loan, get a cosigner and maintain good credit for a period following which they release the cosigner from your loan. Cosigning a loan gets the lender more security for the loan and the borrower can get a lower rate of interest. It seems like a short-term obligation to the co-signer

Co-signed loans hurt the debt-to-income ratio for a borrower. Hence it is advised to learn in detail what is student loan co-signer release, whether you are eligible or not and follow the application process for co-signer release as shown in our student loan cosigner release guide. After a few years, when the borrower has been making routine payments and developing a good credit score, they can apply for their co-signer release. But sometimes the cosigner release is rejected. That makes you wonder why was your application rejected and how can this problem be solved?

Table of contents

Why is it hard to get the co-signer release?

To understand in-depth about co-signer release, it is important to know who is a cosigner. In simple terms, the co-signer release does not provide the lender with any incentives, i.e.: the lender gets absolutely nothing out of it. It is a disadvantage for them because the loan that two people were obligated to pay, now remains as an obligation for one person. All the lender gets out of it is extra paperwork and extra risk. The only incentive for which the lenders may consider cosigner release is if they don’t then they would be tried for fraud. Therefore, most private student lenders put a very high bar for credit score.

What can be done if you are denied cosigner release?

If you are denied a cosigner release, then the proper way would be to make more money, pay off monthly repayments timely and let your credit score increase. This is what is suggested by the lenders but in real life, you can not just suddenly make more money. Below listed are some ways in which you can tackle the problem

Get all the details from your lender

If you want the cosigner release, it is advised that you be proactive. Get all the details from your lender on why were you denied the cosigner release. Most of the time the questions on why someone was denied the release is met by a generic answer such as your income is too low. What you need to do is press for details and get the hard numbers in writing. This will help you set a goal that you can target and then they have to approve it. 

Every time you apply for cosigner release your lender investigates your financials. This is tedious for your lender and also results in a soft credit pull from your credit score. With each passing year, your debt reduces. The lower your debt, the easier it will be to get a cosigner release.

Making a scene 

Most of the private student loan lenders advertise easy cosigner release. Their incentive in cosigner release is that they have to honor their advertisements. Given that you have a good credit score and income and you feel you should have got the cosigner release but were denied, you can spread the word about it. Leaving honest reviews about your lender and their cosigner release program will help other people and might catch the attention of your lender.

You can also file complaints about your lender with the consumer financial protection bureau, or commonly known as CFPB. This would create a record with the federal government and will force your lender to respond to your particular application. If you are deserving but you were denied, this is the proper way to get justice.

Know your lender’s motivations

Student loans are most profitable when the borrowers make a minimum payment and a lot of interest can be levied over the life of the loan. The worst thing that could happen to your lender is that you could take your business somewhere else. Refinancing or consolidation with another company can be a possible option. Upon refinancing, your loan is paid off by your new lender and they give you a new loan with better interest rates. It is advised to understand student loan refinancing in detail and check out the best companies to refinance your loan with if you chose to go for this option

Many lenders who would happily refinance your loan to get a new customer. Some are tabulated below.

  SoFi LendKey Splash ELFi
Pros: SoFi is the only lender who helps their borrower find a job and continuously offers the lowest rates LendKey works with a large network of small credit unions. Hence, many applicants get the best offers from LendKey. Splash has the best new customer bonus and provide excellent rates and terms options Since ELFi is backed by a bank rather than investors, their interest rates vary less and stay low
Cons: SoFi no longer focusses only in Student Loan Refinancing, as the company has grown and branched into mortgages, personal loans, etc LendKey requires dealing with smaller credit unions and banks. This might seem like an unnecessary step for some. Splash being a new lender, getting approval may be difficult for some borrowers ELFi is also one of the newest members of the market.
Bonus $150 $150 Up to $500 $150

Worried about your College Tuition? Find the best student loans suited for you.

Concluding Thoughts

The best option for a borrower might be a combination of all the options discussed above. If you can talk directly to your lender when you are eligible for co-signer release but you have been denied, you could suggest taking your business somewhere else. If you aren’t getting a straight answer to your questions from your lender, you can send a strongly worded email, suggesting you would put negative reviews or file a complaint.

It is hereby advised, that you keep your cool and remember the motivations of your lender and how you can use it for your benefit. This should put you in a position to handle the situation when you are denied a cosigner release despite being eligible.