Cosigner Release

By Mark Kantrowitz

Many lenders offer a cosigner release option on their private student loans.

Typically, the borrower can apply for cosigner release after making 12, 24, 36 or 48 consecutive on-time payments of principal and interest. To qualify for cosigner release, the borrower must also satisfy the lender's credit criteria (i.e., be able to qualify for the private student loan on his or her own, without a cosigner).

Few Borrowers Qualify for Cosigner Release

Very few borrowers qualify for cosigner release. According to the Consumer Financial Protection Bureau (CFPB), less than 10% of borrowers who apply for cosigner release and less than 1% of all borrowers succeed in qualifying for cosigner release.

How to Increase the Changes of Cosigner Release

Borrowers can increase their chances of qualifying for cosigner release by following these steps:

• The borrower should apply for cosigner release only after making the number of consecutive on-time payments required by the lender.
• The borrower should apply for cosigner release only if all of the payments have been made on time. Being late with a single payment is enough to disqualify the borrower.
• The borrower must make all of the payments before the due date. Even though most lenders have a grace period before a late payment is reported to credit bureaus, borrowers who have made a payment after the due date will usually not qualify for cosigner release.
• The borrower should sign up for auto-debit. Borrowers who sign up for auto-debit are less likely to be late with a payment.
• All payments must be made by the borrower, not the cosigner. Some lenders track who made each payment. If the cosigner makes one or more payments, it may raise a question as to whether the borrower is capable of making all of the payments on his or her own.
• The borrower must have sufficient income to be making the payments on his or her own. The monthly loan payments must represent less than 10% of the borrower's gross monthly income.
• The borrower should have stable employment for at least one year before applying for cosigner release.
• The borrower must demonstrate no signs of financial difficulty. In particular, using a deferment, forbearance or a repayment plan with reduced monthly loan payments will disqualify the borrower from cosigner release. The borrower must also not have any bankruptcy discharges, foreclosures, repossessions, tax liens, wage garnishments, charged-off accounts, accounts in collections or serious delinquencies in the borrower's credit history.
• The borrower should have a very good or excellent credit score (i.e., 750 or more). A high credit score increases the chances that the borrower will qualify for cosigner release.

Alternatives to Cosigner Release

If the borrower does not qualify for cosigner release, there is an alternative. The borrower could try to refinance the private student loans without a cosigner. (Although the credit criteria for cosigner release are similar to the credit criteria for obtaining a private consolidation loan, some lenders may have less stringent criteria.) When the new loan pays off the old loans, it effectively releases the cosigner from his or her obligation to repay the old loans. Options include private consolidation loans, home equity loans and personal loans from a bank or credit union.