Student loans are one of the major debts that an individual takes to receive education and half of their lives are spent clearing these debts. Refinance student loans with a cosigner has been of great advantage to loan borrowers wishing to refinance and have a lesser interest rate. To pay the loan off soon, refinancing your loan is one of the options that you can go for. Refinancing your student loans can help pay off the loan faster or can even help make your payments more manageable. It all depends on the objective of why someone would want to refinance.Some private lenders offer options for refinancing your federal, private, or even a mix of borrower's private and federal student loans. But they can’t perform the consolidation activity. It is solely performed by the government and also they consolidate only federal student loans. Refinancing your loan will give a new loan with a different and probably lower rate of interest with liberal repayment options. Thus, it is one of the ways to repay your loan.
It is a crucial decision to take to refinance your loan as you will lose the opportunity to take public service forgiveness program, repayment options based on your income, forbearance & deferment options when you are facing difficulty with finances. To refinance your loan, there are certain requirements that the lender will look into, the most important one is to have a cosigner to it. A cosigner is an individual who will pay your debt if you are not able to do with conditions to it. Let us know how refinancing of student loans works with a cosigner to it, the process, related benefits and drawbacks, and more. Table of Contents
- Who is a Cosigner
- Lenders requirement for Refinancing with Cosigner
- Pros & Cons of having a Cosigner for Refinancing Loan
- The need for a Cosigner
- Procedure to Refinance Loan with a Cosigner
- Various Risks for Cosigners
Who is a cosignerA cosigner is a third party who is ready to take responsibility to pay your debt off, for a new loan or a refinanced loan if you are finding it difficult to repay the loan on certain pre-agreed conditions. There are various things that the lender looks at to approve a student loan cosigner like their credit history, credit score, debt to income ratio, stable home, job, and other aspects. If you cannot make your repayments on time, then it impacts the credit score of the cosigner as well. You need to be very calculative in terms of getting your loan to refinance and the cosigner’s creditworthiness.
A cosigner can be your parent, grandparent, trusted family member, or a friend who has good creditworthiness. It is unlikely to have a good credit score at a young age, though federal student loans do not need a cosigner, most private student loans are offered to students with a cosigner. Therefore, a cosigner plays a crucial role in the progress of obtaining a student loan. Learn more about who is a cosigner?
Lender requirement for refinancing with a cosignerAs you know only private lenders offer the option for refinancing, their terms & conditions differ from each other. Even though they are different in offering specific services- Citizens Bank is known for its refinancing with cosigners program whereas CommonBond offers to refinance with a cosigner if you fail to qualify without it. There are few things that lenders in common expect from a cosigner to approve the student loan refinancing. The following are the basic requirements. 1 - A Good credit score/History- A credit score is one amongst all the attributes that the lender will definitely look into, to approve your student loan refinancing. Thus a good credit history and proven credit score are necessary for it. It depends from lender to lender which credit score they take as “significant” for qualifying to refinance. In all, a credit score of 650 or above is average to good for almost all the lenders, this credit can help you in getting fair rates for refinancing. Bear in mind that, if you fail to make your repayments on time, your cosigner's credit score will take a hit negatively. 2 - Stable and sufficient income- Most lenders consider this as an important measure, they want to be certain of the payments from your end. The higher the income, the better the chances of getting your loans refinanced. Likewise, if the cosigner does not have a stable income, it is quite possible for your request to refinance be turned down. Cosigner's credit history will be checked to know their creditworthiness before they approve refinancing your student loans. Your debt to income ratio will also be checked taking present loans so that they can analyze you better. Because at the end of the day they want both parties to be in a win-win situation. 3 - Apt age and health - The lender needs to be sure that they receive their interest and the principal amount from you. Therefore, it's a reasonable act to enquire about the cosigner's age and health. They also check your relationship you maintain with the cosigner who is willing to help you refinance. 4 - Stable work and home- If you are switching your jobs frequently that shows your instability and it will affect your refinancing approval, the same way if it is seen that you have a permanent accommodation for 5 or more years it will help the lender assuring your house stability and can approve your loan refinancing easily. If you are lacking in any of them, then the lender asks for a cosigner to be there so that you can be helped in case of financial hardships.
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Pros & Cons of having a cosigner to refinance student loansCan refinancing student loans be beneficial? Before you refinance your student loans, here is what you must know:
- Chances of approval will increase - If you are a recent graduate then you may lack having a good credit score or maybe your income is not fixed, then it is difficult to get loan approvals but if you have the support of your cosigner then you will be able to qualify for it with ease, as the lender will consider credit score. This will improve your chances of getting the loan refinanced.
- Improved terms of refinancing - A cosigner who is qualified can make the lender trust you more and can offer you better terms and lower interest rates for your refinanced loan.
- Beneficial in case you have not qualified for the basic requirement - The basic requirement of student loan refinancing is that the borrower should be a citizen of the US if you are a non-resident but your cosigner is a permanent citizen of the US. This will be a positive sign of your loan approval. The lender can rely on you and approve your refinancing.
- Tough to find a cosigner - Being someone’s cosigner is a responsible task, as you need to be very keen about their finances. If their finances are not stable, it is going to impact your finances too. It is always said to choose the borrower wisely by looking into the complete information.
- Difficulty to get someone to cosign your loan - A cosigner can be a family member or a friend, it can be an awkward situation to request them to support in refinancing your student loans. And associating professionally with your dear ones can sometimes be complicated.
- Responsibility on cosigner - Your every action on repayment of the loan will have a direct impact on the cosigner’s report as well. Your on-time pays to make their credit good and delays will make it low. Even if you are making irregular payments but this will impact the cosigner’s DTI ratio and it can impact them if they want to have any mortgage or other kinds of loan. The cosigner needs to be very attentive while co-signing anyone’s refinancing options.
Financial independence - Until you are solely responsible for your debts and incomes, you do not feel satisfied with sharing your loan with a cosigner that can make you feel that you are dependent on them. So, managing your loan on your own term is a dream for many borrowers and their financial independence.
The need for a cosignerYou might have asked yourself why the need for a cosigner to refinance your loan. You should be asking a couple more questions to yourself before opting for it. These questions might help you understand whether you need a cosigner The following are a list of few,
- If you are the cosigner, will you be able to manage to pay if the repayments are not on time?
- Why you need a cosigner? Are your credit score and incomes not robust to take a loan?
- What will be the consequences if you or the cosigner passes away before paying off the loan?
- Is communication easier between you and your cosigner?
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Procedure to refinance a loan with a cosignerTo apply for refinancing with a cosigner, there is a pre-set process to be followed. This will help you understand the various requirements during the process and you will be ready to apply for it in one go. Following are the steps to refinance your loan with a cosigner
1) Search for a lender who provides refinancing with a cosignerSome lenders provide options for refinancing with a cosigner. You need to look after those lenders and select accordingly which matches all your requirements. Below is the list of private lenders who provide refinancing with cosigners.
|CommonBond||Fixed - 4.09%, Variable 4.26%|
|SoFi||Fixed - 2.99%, Variable 2.25%|
|Laurel Road||Fixed - 2.99%, Variable 1.99%|
|Citizens Bank||Fixed - 2.99%, Variable 1.99%|
2) Get a cosigner on board for refinancing the loanMake sure that the cosigner is aware of all the terms and conditions before signing the agreement. They should know all the ifs and buts so that they will not face any problem in the future. A cosigner is a person responsible to make payments if you fail to repay on time. If the borrower fails to make the repayments and default on loans. In this case, the borrower and the cosigner's credit history will be affected negatively. Therefore, the cosigner must know all the terms and conditions before he/she signs the refinancing documents.
3) Comparison of rates of refinancingBefore applying for refinancing, you will have to fill a pre-application which will do a soft check on your and your co-signers' credit score. This will give you an idea of what probable interest you can get if your loan will be approved. You can make a comparison of all the rates and decide which lender you will be going with. Refinancing is not always worth the effort in all situations if you do not refinance for a lower interest rate. There are also calculators each lender has developed for calculating your interest rates after refinancing so use these tools effectively to save your money.
4) Apply for student loan refinancingAfter the pre-check, now you can fill the final application form for refinancing the loan with all the related documents required. The documents of you and your cosigner together- the income statement, address proofs, government IDs, Social security number, and many more. Also, be aware of the eligibility criteria to ensure you qualify for the process. Most lenders have an online web portal where you can fill the details and have your loan refinanced. Be informed about the interest rates and loan terms for the new loan.
5) Sign the agreementWhen you will be approved for the loan, the lender will send you a full agreement with all the terms & conditions and the dos’ and don’ts for the same. You and the cosigner need to sign the contract to accept the agreement. Before signing the contract both the lender and cosigner can deny accepting the contract. Henceforth, it is very important to read and understand all the terms and conditions and agree to comply with protocols before you submit the form. Start repayments with a cosigner as your initial payment and the monthly payments will be outlined in the contract separately, after signing the agreement both have to make sure that the payments are happening on time.
The risk faced by cosignersThe cosigner needs to be very specific while going for co-signing refinancing loan as it is going to impact their report as well, may be good or bad whatsoever is the case. Apart from this risk, there can be chances that the cosigner needs a loan, then the prevailing loans will appear in the report and this will impact the denial or approval of any new loan. If in any case, the primary borrower is not making payments on time, then the cosigner will be wholly liable to pay out the borrower’s debts. Thus, take the decision thinking of all the consequences of it.
Release of the cosigner
There are some lenders like Citizens Bank, Earnest which offers a release of a cosigner but after the fulfillment of certain conditions. Say, these lenders can offer you a release of cosigner if you have made 36 consecutive repayments on your loan. The reason being that they get assured of your financial stability and also they can rely on you. In general, the lenders prefer the cosigner to stay with the borrower, it gives them more security for the repayments on refinancing. The release of a cosigner is expected to be initiated from the side of the borrower, the lenders don’t initiate on their own. And there are lenders who do not offer cosigner release by any means.