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Student Loan Repayment, Refinance, Release: Essential Info for Your Co-signer

Talking to Your Co-signer About Your Student Debt

Asking a parent or another family member to co-sign on a private student loan could help you land a better interest rate if they have a strong credit score. Just remember — even though you may be making the payments on your loans, your co-signer shares legal responsibility for the debt.

 

Keeping the lines of communication open can help you develop a strategy for managing your loans that benefits you both.

Repayment for your co-signed loans

First things first: you and your co-signer should discuss how to handle repaying the loans. If your co-signer is a parent, for example, will they be paying anything toward the loans or will you be footing the bill?

 

Review the payment schedule set by the lender so you both understand how much the monthly payment is and when it's due. Then, look at your monthly income and expenses. Is there enough room in your budget to cover the payment without being stretched thin? Does your lender offer forbearance or deferment periods if you have a temporary financial hardship? Would the co-signer be willing to take over payments temporarily if you end up in a bind?

 

Asking these kinds of questions now can head off problems down the line, both for yourself and your co-signer. Missing payments can cause serious damage to your credit as well as your co-signer's since the loans are listed on both of your credit reports. Having a contingency plan in place means you're not putting your co-signer's credit in jeopardy unnecessarily.

Refinance

Refinancing your student loans may allow you to save money and pay the debt off faster if you're able to secure a lower interest rate. If your credit isn't established enough yet to refinance in your name only, you'll need a co-signer to come along for the ride.

 

Like with any credit based loan, applying will result in an inquiry on both of your credit reports. Inquiries are a part of borrowing, but can knock a few points off your credit score, which is something your co-signer will want to know.

 

Refinancing into a shorter loan term with a higher payment is also something the two of you should talk about. A shorter term means you'll eliminate the debt sooner, but higher payments can impact your co-signer's debt-to-income ratio. If they're planning to apply for a loan, that could affect your co-signer’s ability to get approved.

 

On the other hand, refinancing into a longer term means smaller monthly payments, but the debt will remain on their credit report for a longer time. A longer loan term also means that interest will accrue for a longer period of time, which will result in a higher total cost over the life of the loan. Having said that, there may be a way to lessen the amount of time the co-signer has to be on the loan…

Co-signer release

If you're not able to refinance your loans on your own, that doesn't mean they have to remain on the loans indefinitely. Many private student loan lenders allow co-signers to be released after a borrower has made a set number of consecutive, on-time payments. That's appealing for potential co-signers who may be eager to help you but are wary of remaining on the hook for a decade or more.

 

You'll need to be able to show that you have enough income to handle the payments on your own and a credit check is typically required. Once the co-signer is released, they're no longer responsible for the loans.

 

Knowing that an "out" exists can take some of the stress out of the co-signing process for both sides. That said, release is not guaranteed, and you'll want to be clear with your co-signer that if and until released, they still shoulder responsibility for repayment.

 

Check out our other resources for more information about managing student loan debt, or call 877-464-6340 to speak to a Student Lending Specialist.