If you’re carrying student loan debt, you’re clearly not alone. In fact, the average American with student loan debt graduates with more than $37,000 of debt. If you feel like you’re paying too much in monthly student loan payments, you may be considering refinancing your loan(s).
Specifically, refinancing your student loans allows you to replace your existing student loans with a new loan, often at a lower interest rate and with more favorable terms. By refinancing, you may be able to lower your monthly payment and/or save money over the repayment period of your new loan.
One thing to consider when it comes to student loan refinancing is whether you’ll apply with a cosigner. If you had a cosigner on your student loans when you initially took them out, refinancing will inherently give you the option to drop your cosigner. Alternatively, some borrowers may choose to keep their original cosigner or even add a new, different cosigner when they refinance.
Having a better understanding of the pros and cons of adding or keeping a cosigner when you refinance your student loans can help you make the best choice for you.
Are You Ready to Refinance Your Student Loans?
Start by making sure you’re in good shape to refinance your student loans. Ideally, you should have a steady and reliable stream of income, as well as established credit history. This is important because when you apply for a refinance loan, lenders are generally going to look closely at your credit score, income, debt, and credit history to determine whether to approve you for a refinancing.
Once you’re ready to refinance your student loan, consider whether you’ll add/keep a cosigner or apply to refinance by yourself.
Advantages of Adding or Keeping a Cosigner
Whether you initially took out your student loans with a cosigner or are thinking about adding one when you refinance, there are some inherent benefits to consider.
Improve Your Overall Chances of Approval
If you’re unsure as to whether your refinance application will be approved independently (either due to a poor credit score or lack of overall credit history), then adding or keeping a cosigner can be a wise choice. Specifically, having a cosigner on your application can oftentimes increase your chances of being approved, especially for those applicants who have recently graduated from college and may not yet have a steady job or high income.
Qualify For Lower Interest Rates
Having a cosigner on your application can also lower your perceived risk to lenders, which may qualify you for a refinance loan with better terms. For example, you might qualify for a lower interest rate with a cosigner on your application. This could save you a lot of money over the repayment term of your new loan.
Potential Drawbacks of Adding or Keeping a Cosigner
Of course, there are some possible disadvantages to consider when keeping or adding a cosigner to your student loans.
It’s Not Always Easy (Or Comfortable)
One of the biggest challenges for some student loan borrowers is finding a willing cosigner to begin with. When somebody cosigns a loan with you, he or she is taking legal responsibility for that loan. It can obviously be a little uncomfortable to ask a friend or family member to cosign a loan for you.
Is a Cosigner Right For Your Refinancing Situation?
There is no universal answer whether refinancing with a cosigner is right for you; instead, keep a few things in mind as you decide.
Consider Your Relationship With the Cosigner
Start by thinking about who you would potentially ask to cosign with you and what your relationship is like. Are you able to openly and easily communicate with this person? Are you comfortable sharing your financial information with him or her? How might your relationship be affected if you were to miss a payment or have trouble making payments on time?
Take a Look at Your Current Credit Score
It’s always a good idea to know where your credit stands, but it’s especially important if you’re thinking about refinancing. If you have well-established credit and a respectable credit score, as well as a stable source of income, you may be able to get easily approved for a great refinance loan without the need for a cosigner.
Make Sure You Both Understand the Risks
If you’re considering refinancing your student loans with a cosigner, be sure to sit down with your cosigner before you submit your application to carefully review the risks and specific lender requirements.
As you can see, there are benefits and possible drawbacks to adding or retaining a cosigner when refinancing your student loans. By weighing the pros and cons as they relate to your specific situation, you can choose the best option for you.