If federal aid is not enough to cover to cost of educations, private student loans may be a good option. Private student loans can cover the remaining financial gap. Since most college students do not have well-established credit, a cosigner may be needed to get approved. Cosigning a private student loan can be a big undertaking, but there are some lenders that offer cosigner release that can help remove the cosigner from the loan early. It is important to understand the details of cosigner release before taking on the responsibility.
What is a Cosigner Release?
Releasing a cosigner within a private student loan enables a cosigner to be released on an application and, additionally, from any duty to ensure loan payments. This is possible once certain repayment requirements are met by the primary borrower. This allows the cosigner’s credit to be cleared from this student loan debt.
How to Conduct a Cosigner Release?
In order for a cosigner to be released, the primary borrower must complete certain minimum requirements for a specific period of time. These minimum requirements are enough to demonstrate that the borrower is able to handle debt repayment on their own. This allows the cosigner to be released from the obligation of repaying the debt.
The most common requirements to enable a release.
- Borrower must have graduated from college. If the borrower cannot provide proof of graduation, then the cosigner cannot be released. A copy of the actual degree or an official school transcript would be sufficient documentation.
- Borrower must make a minimum number of full monthly payments. Full monthly payments includes the entire principal and interest amount. To qualify, each payment must be on-time. A range of 12-48 monthly payments may be required depending on the lender.
- 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 on their own. This can be usually verified by providing two recent pay stubs.
- Borrower’s credit must be approved on a standalone basis. The borrower will need to meet minimum credit requirements before the cosigner can be released. That means the lender will have to check the primary borrower’s credit information before allowing the cosigner to be released.
What Happens After the Cosigner is Released?
Often, the cosigner is able to have their credit and debt-to-income ratio improved by removing the student loan debt. This may create flexibility for the cosigner in a few ways.
- May enable multiple college0bound children. Releasing a cosigner 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.
- May free 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.
- Offers peace of mind. Cosigners 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.
Make Sure You Have the Option for Release (Private Student Loan, Consolidation)
Students and cosigners should make a note to check on release options on any private loan. Not all private lenders offer cosigner release on student loans. By checking, a debt exit strategy can be implemented to ensure the primary borrower is paying back their debt. This enables the cosigner to receive the release benefit. Without a cosigner release option, the cosigner would remain obligated to the loan until it is fully repaid. LendKey offers options. LendKey can match a student up with a lender that offers cosigner release on private student loans. Find out more at LendKey.com/PrivateStudentLoans.