Are you struggling to make payments on your student loans? Refinancing may lower the interest rate on your loan and help lower your monthly payments, but poor credit or a lack of credit history can make getting approved for a loan on your own difficult. You may have better luck if you can refinance with a cosigner.
Here’s what you need to know about refinancing student loans with a cosigner:
- What is a cosigner on a loan?
- What are the requirements for a cosigner?
- Benefits of having a cosigner
- Steps to refinance with a cosigner
- How to find a cosigner
- Pros, cons of having a cosigner
- Alternatives to refinancing with a cosigner
What is a cosigner on a loan?
A cosigner on a loan is an individual who agrees to take legal responsibility for a loan if the borrower fails to repay. You might need a cosigner if you have shaky credit, lack an established credit history, or have already maxed out your borrowing limit.
When it comes to student loans, a cosigner can help you qualify for a lower interest rate, which can make your monthly payments more manageable.
What are the minimum requirements for a cosigner?
Most lenders require that the cosigner meet certain criteria before they will consider them for this role on your loan.
While the specific criteria might vary from lender to lender, it might include:
- Good credit: Lenders typically look for a credit score of 670 or above.
- Enough income to repay the loan if you default on it: To evaluate your cosigner’s ability to repay the loan, lenders will look at their debt-to-income ratio (DTI), calculated by taking the total of all their monthly bills and dividing it by their gross monthly income. Lenders typically prefer cosigners with a DTI below 50%.
If your cosigner meets these criteria, they will likely be able to help you qualify for a loan that you could not get on your own.
| Keep in mind: Having a cosigner does not guarantee approval for a loan. Lenders will still look at your credit history and income, among other factors, to decide whether you are an acceptable risk or not. |
Benefits of having a cosigner for your student loans
Having a cosigner for your student loan can bring many benefits. One of the most obvious benefits is that having a cosigner can help you qualify for a loan you might not be able to get on your own or qualify for lower interest rates. This means that your monthly payments will be more manageable, and you won’t have to pay as much interest over the life of your loan.
In addition, having a cosigner can help you build your credit history and improve your overall credit score. As long as you make on-time payments throughout the course of the loan, it will reflect positively on your credit. And having good credit can make it easier to qualify for other types of loans in the future, including mortgages, and car loans.
Steps to refinance your student loans with a cosigner
If you are looking for a cosigner for your student loan, here’s a step-by-step guide to getting started.
Understand your credit score
The first step to refinancing your student loans with a cosigner is to determine if you are eligible for the loan. Most lenders require that you have at least some credit history, so it’s important to understand what your credit score looks like before you try to refinance student loans with a cosigner.
Your credit score is a number that indicates how you have managed credit in the past. It ranges from 300 (very poor credit) to 850 (excellent credit). You actually have more than one credit score since three different credit reporting companies — Experian, Equifax, and TransUnion — each have different information in your credit file. Lenders use different credit scores for different types of loans.
| Tip: One of the easiest (and free) ways to check your credit score is to check a recent credit card or loan statement. Many major credit card companies and lenders now provide free credit scores for their customers, so check a recent statement or log into your online account. |
You can also purchase your score at myFICO.com. You can purchase your score from one credit rating agency for $19.95 or pay $59.85 for credit scores from all three agencies.
If you have a low credit score, you can take steps to improve it before you apply for student loan refinancing. One option is to pay off any outstanding debts that may be bringing down your credit score. You can also work on building up a positive payment history by making all your payments on time and being careful not to accumulate too much debt.
Lower your DTI
Debt-to-income ratio is a key factor used by lenders when deciding whether to extend credit to someone. A high DTI can make it difficult to get approved for a loan, as it indicates that you may have difficulty repaying your debt. One way to lower your DTI is by paying down existing debts or making more money through a side hustle or other means.
Find a cosigner
Finding a cosigner for a student loan can be tricky. It’s important to look for someone who is financially responsible, with a good credit score, and a low debt-to-income ratio. A cosigner should also be someone you trust, as they will be legally responsible for the loan if you can’t make payments.
Compare lenders
When looking to refinance your student loan with a cosigner, it’s important to compare the lenders available to identify the best deal. By comparing different lenders, you can determine which one offers the lowest interest rates and fees, as well as the most flexible repayment options.
The first step is to research the different lenders available and compare things like interest rates, repayment terms, and any additional fees. This will help you to identify the most suitable option for your needs.
Apply with a cosigner
Once you have found a lender that you like, you can start the application process by providing some basic personal and financial information about you and your cosigner.
Finally, be prepared to complete the full application and provide any additional information that may be required by the lender. This may include things like pay stubs, tax returns or other financial documents, as well as providing permission for the lender to do a credit check on you and your cosigner.
How to find a cosigner to refinance student loans
Many people naturally think about family members, such as a parent or grandparent, when looking for a cosigner, but family members aren’t the only option.
If you don’t have a ready and willing family member to cosign, consider:
- Friends
- An employer
- A cosigner service like CosignerFinder.com or HireACosigner.com
When you choose a cosigner for your loan application, it’s important to consider the overall impact of having them on the loan.
Here are some factors to consider, including:
- Will your cosigner be willing and able to help you make payments if you have trouble doing so?
- If your cosigner is a parent or guardian, will that impact their ability to get loans for future needs, such as a mortgage or auto loan? If this is a concern, you might want to look for a student loan with cosigner release.
- Does getting a lower interest rate on your loan outweigh the potential impact on your credit if you have problems making payments?
- Will refinancing impact your eligibility for certain student loan repayment programs, such as Public Service Loan Forgiveness (PSLF) or income-driven repayment plans?
Pros and cons of having a cosigner
A cosigner can be an effective way to get approved for a loan, but they also come with some risks. Here are some pros and cons to consider.
Pros of refinancing with a cosigner
- Better chance of qualifying for a loan: Refinancing a student loan with a cosigner can be a great option for those who may not qualify for other types of financing.
- Lower interest rates: The primary benefit of refinancing with a cosigner is the improved interest rate and terms that they can provide. By having someone with better credit, the lender is more likely to offer more favorable rates and terms, making it easier to get approved and potentially lowering your monthly payments.
Cons of refinancing with a cosigner
- Cosigner’s credit is put at risk: One major downside of refinancing with a cosigner is the risk that comes with having them on the loan. If you are unable to make your payments, then your cosigner will be held responsible for making those payments. This can impact their credit and may also mean that they are less likely to qualify for other types of financing in the future.
- Losing federal student loan benefits: If you’re refinancing federal student loans into a private student loan, you will lose certain federal student loan benefits, including income-driven repayment, deferment, forbearance, and the ability to participate in loan forgiveness programs.
Alternatives to refinancing student loans with a cosigner
Here are several alternatives to refinancing student loans with a cosigner that may be more appropriate based on your financial situation.
- Apply for an income-driven repayment (IDR) plan. These plans allow borrowers to make payments based on their income and family size, potentially reducing the monthly payments and making them easier to manage.
- Talk to a student debt counselor. A student debt counseling service can provide guidance around repayment options and other strategies for managing your debt.
- Earn extra income. Depending on your situation, you may want to consider getting a part-time job or earning extra income in order to make your monthly payments more manageable.
No matter which option you choose, it’s important to carefully consider all your options and the impact of any financial decisions before diving in. With careful planning and preparation, you can find the right solution for refinancing student loans with a cosigner that works best for you.