Refinancing your student loans can be a way to lower your monthly payments or get a lower interest rate. When you refinance, a private lender pays off your current student loans and replaces them with a new loan that has different terms.
Applying with a co-signer can make you a stronger candidate in a lender's eyes. That’s because a co-signer agrees to share legal responsibility for repaying the loan, and their income and credit history can strengthen your application. If you have a low income or poor credit, or you simply want a better rate, refinancing with a co-signer could be a good option for you.
» ESTIMATE: Calculate how much you can save with refinancing
How important is a co-signer for refinancing student loans?
Lenders want borrowers who will pay back their loan. They look at applicants’ credit history and income to make this decision. Sometimes, an applicant will need a stronger financial profile in order to get approved. That’s where a co-signer comes in. Co-signing the loan with someone who has a stronger financial history than you may get you better terms on your loan, such as a lower rate.
Refinancing your student loans with a co-signer can improve your chances for approval and get you an even better rate than refinancing by yourself. For example, the lender Rhode Island Student Loan Authority reported to NerdWallet that 70% of its approved borrowers for refinancing have co-signers, and College Ave said 51% of its approved borrowers had a co-signer.
» EXPLORE: How often can you refinance your loans
Who might benefit the most from a co-signer?
A co-signer matters most when your credit score is fair or low. If your score is already in the mid-700s, for example, the rate improvement you’d get with a co-signer is likely too minor to justify putting someone else on the hook for your loan.
If you have a low income, bad credit history or a high debt-to-income (DTI) ratio, you may need a co-signer to appear more appealing to lenders. When you apply for refinancing with a co-signer, the private lender will look at your co-signer's income, DTI ratio and credit score as well as your own.
Sometimes a co-signer might be essential for approval. For example, borrowers with a history of bankruptcy might have more luck getting approval with a co-signer.
Additionally, international and Deferred Action for Childhood Arrivals students may be required to have a U.S. citizen co-signer in order to be eligible for some refinance lenders.
If your application to refinance your student loans was denied, you can try applying again with a co-signer. You can always pre-qualify with a refinance lender with and without a co-signer to see which path saves you more money.
» MORE: Explore our top student loan refinancers
What is a co-signer release and how do you get it?
Co-signer release removes your co-signer from legal responsibility for your loan. You'll likely want to release your co-signer once you're able to better manage the loan on your own.
To qualify for co-signer release, you'll typically need to make a set number of consecutive, on-time payments, often between 12 and 48. Your lender may also require you to undergo a hard credit check. Each lender sets its own requirements for co-signer release, so make sure you understand the terms before applying.
A longer waiting period, such as the 48 months required when refinancing with a lender like Yrefy, may be fine if you think you'll need that time to improve your finances or income. However, your co-signer may want to be released sooner.
Not every lender offers co-signer release, so check before applying to make sure the option is available. For example, SoFi doesn't offer co-signer release on refinanced loans, so if release is important to you or your co-signer, make sure the lender offers it before applying.
» EVALUATE: How to know when it’s time to refinance
The risks of co-signing
Asking someone to co-sign your refinanced loan can be an awkward conversation, especially if they say no. Your co-signer could be your spouse, a parent or trusted friend, as long as they have strong credit and a stable income.
But co-signing isn't without risk. When you co-sign a loan, you become legally responsible for repaying it, and any late or missed payments can show up on your credit reports. Typically, the only ways to get off the loan are through a co-signer release or by having the primary borrower refinance the loan in their name alone.
If the primary borrower dies, the loan may be discharged, but this depends on the lender and the loan terms. Before agreeing to co-sign, find out what happens if the primary borrower dies, since the co-signer could still be on the hook.
Co-signing a loan also affects your DTI, an important factor lenders consider when you apply for a mortgage. Talk to a mortgage professional to learn how a co-signed loan could affect your application.
» LEARN MORE: Co-signing with your spouse
If you can’t find a co-signer, you can instead try:
Strengthening your credit profile, such as by paying down credit card balances, if you can keep up with your current loan payments a while longer.
Choosing a lender with lower qualifying requirements, if you need to refinance now.
Keeping your federal loans, but looking at other plans that might be more affordable if you're on the fence about refinancing.
