When comparing private student loans, it’s important to remember the needs of the cosigner. Often, students that are in need of additional college funding turn to loans, and may need a cosigner to get approved for some. Usually a parent ends up handling the duties, but before signing up, they should consider all the details.
What is a cosigner release on a private student loan?
It’s when a cosigner can be released from an application once certain repayment requirements are met by the primary borrower on a private student loan application. This allows for the cosigner’s credit to be cleared of the debt, freeing it up for other needs.
How does it work?
In order for a cosigner to be released from a private student loan application, the primary borrower must often complete certain minimum requirements. These minimum requirements are enough to demonstrate that the borrower will be able to handle debt repayment on their own, allowing the cosigner to be released from the obligation of repaying the debt if the borrower were unable to do so. The most common requirements include:
- Borrower must have graduated from college: If the borrower cannot provide proof of graduation, then the cosigner cannot be released. Proof is usually found in the actual degree certificate or through an official school transcript.
- Borrower must make a minimum number of full monthly payments: Full monthly payments include entire principal and interest portion that is due. Each payment must be on-time to qualify. A range of 12-48 monthly payments may be required depending on the lender. Private student loan consolidations may also qualify for a similar cosigner release program.
- Borrower must be employed and earning a minimum income: The lender may ask for proof of income to determine that the borrower is meeting the income requirement. This is usually found in the two most recent pay-stubs, but may also require a w-2 or other proof of income documentation.
- Borrower’s credit must be approved on a stand alone basis: The borrower will need to meet minimum credit requirements before the cosigner can be released. The lender will have to check the primary borrowers credit information before allowing the cosigner to be released.
What happens when the cosigner is released?
Often, the person that cosigned is able to have their credit or debt-to-income ratio improved by removing the other debt. This may create flexibility for the cosigner a few ways:
- Multiple college bound children: Cosigner release can free up parent credit to cosign for another child going to college. Good planning can allow for credit to be fairly distributed to each child. The last thing parent’s want is to over extend their credit to one child, but be unable to assist the next one.
- Frees up credit for other needs: With low rates available on other auto or home loans, parents removing their obligations as a cosigner could improve their credit to qualify for them.
- Peace of mind: Co-borrowers are just relieved to know that the debt is no longer something they are obligated to in the event the primary borrower is unable to repay.
Making sure this feature is available on your private loan or consolidation
Students as well as cosigning parents, make sure to check on cosigner release options on any private loan before committing, this way a debt exit strategy can be implemented to ensure the primary borrower is paying back their debt, and the cosigner can receive the release benefit. Without a cosigner release option, the cosigner would remain obligated to the loan until it is fully repaid.