In this article, we’ll answer the question, “Can I refinance a loan I cosigned?” We’ll go over the reasons why you might want to refinance a loan that you cosigned, as well as multiple ways to do so.
Can I Refinance a Loan I Cosigned?
Technically, you can’t refinance a loan you cosigned, only the primary borrower can. Although you’re legally obligated to repay the debt if the primary borrower stops paying, you’re not the “owner” of the loan.
If you cosigned your child’s student loan, your child is the “primary borrower,” which means he or she owns the obligation.
Generally speaking, only the primary borrower can initiate a refinancing process. As a cosigner, you can’t refinance the debt on your own. However, that doesn’t mean that refinancing the loan is totally out of the question.
How to Refinance a Loan You Cosigned
If you’ve decided that refinancing is the best option, you’ll have to get the primary borrower on-board first.
The way you go about refinancing a loan you cosigned depends on your goal in refinancing. If your goal is to take your name off of the loan, you won’t want to cosign the new loan. However, you can cosign the new refinance loan if your goal is to get better interest rates.
Ask the Primary Borrower to Refinance
The first step in refinancing a loan you cosigned is approaching your primary borrower. If they need convincing, show them how they can save money through refinancing.
If the primary borrower has good or excellent credit, they can sign the loan themselves and take full responsibility for the debt. For graduates, this can be a big step in gaining financial independence, and it might be incentive enough.
Good or excellent credit will also allow the primary borrower to reduce their interest rate, and adjust their loan terms to fit their needs.
Agree to Cosign the New Loan
Your goal in refinancing a loan you cosigned might be to take your name off of the debt entirely. However, you might also just want to see if you qualify for better rates. If you don’t mind keeping your name on a loan you cosigned, you can cosign the new, refinanced loan.
You and your primary borrower would apply for a refinance loan together, with you as the cosigner. This is beneficial to the primary borrower if they don’t have good or excellent credit since they might not qualify on their own.
This option is best if you only want to refinance a loan you cosigned to get better interest rates or adjusting your loan terms.
Here are our top-rated lenders for refinancing a student loan
Why You Might Want to Refinance A Loan You Cosigned
As mentioned above, the way you approach refinancing a loan you cosigned depends on your goals with the loan.
There are several reasons why a cosigner might be interested in refinancing a loan:
1. You can save a ton of cash
The most common reason for wanting to refinance a loan is to save money. If your credit score has improved or interest rates have dropped, you can qualify for lower interest rates and potentially save thousands of dollars throughout your loan term.
Whether or not the primary lender’s credit score has improved or become worse can also make a big difference. If your credit score has improved, but the primary lender’s score has decreased, you might not qualify for better rates together on a refinance loan.
But if both of your credit scores have improved, you could qualify for significantly lower interest rates on a new loan.
Use this calculator to see how much you could save by refinancing
2. You don’t like your lender.
Another reason you might want to refinance is to switch lenders. If you’re not happy with the service provided by your current lender, or you feel like you could get better rates elsewhere, switching lenders through refinancing is a logical choice.
It may be possible to refinance with the lender you have now and rework your contract to be more beneficial to you. However, if your lender simply doesn’t offer the rates or terms you’re looking for, or if their customer service is sub-par, you can refinance with another company.
When you’re looking for a loan refinance lender, compare their rates and terms, as well as their options for cosigner release.
3. You want the option of cosigner release.
You might choose to refinance your loan to gain the option of cosigner release. If your current lender doesn’t offer the option for release, you could refinance with a lender who does.
Down the line, after your primary borrower has made the required number of qualified payments, they can apply for co-signer release. This will take your name off of the loan and free up your credit for other things.
Even if this isn’t your primary goal in refinancing, you can benefit from working with a lender who offers cosigner release.
4. The primary borrower is missing payments.
When you cosigned the loan, you considered the fact that you might get stuck with repaying the debt. However, you might not want to do so—or you might not be able to do so financially—now that the time has come.
If your primary borrower has started missing payments, the loan company might be approaching you to make up the difference. In this case, you might want to refinance the loan for the sole purpose of removing your responsibility.
However, a lender won’t allow you to take your name off the loan if the primary borrower can’t prove their ability to repay the balance.
And, even if the primary borrower can prove that they’re capable of repaying the loan, the lender might have policies in place that prevent you from removing yourself as a cosigner.
5. You want to consolidate multiple loans.
Finally, you might want to refinance more than one loan in one go. If you cosigned multiple private student loans, your debt could get confusing. You could be liable for thousands—if not tens or even hundreds of thousands—of dollars in student loan debt.
Together, you and your primary borrower might decide to consolidate and refinance your loans. You can’t consolidate loans you cosigned without the agreement and cooperation of the primary borrower, who is responsible for repaying those debts.
What to Keep in Mind if You Refinance a Loan You Cosigned
No matter what your reason for wanting to refinance a loan you cosigned, you can go about it in several different ways. As discussed above, you can agree to cosign a new refinance loan, or you can try to have your name removed from the loan, either before or after refinancing.
Either way, here is what you need to keep in mind if you want to refinance a loan you cosigned.
Some lenders don’t allow cosigners for student loan refinancing.
You can refinance a student loan that you cosigned by cosigning a new, refinance loan along with the primary borrower. However, not every lender offers this option.
In some cases, a student borrower will be required to show qualifying credit scores and income on their own.
Not all refinancing rates are created equal.
One of the most important things to keep in mind whenever you refinance a loan is the refinanced rates. Refinancing can be a time-consuming and taxing process, so you want to make sure all that effort is worthwhile in the end.
When you’re looking at refinancing, make sure you carefully compare the rates and terms of multiple reputable refinance lenders.
The primary borrower has to be on board.
As we mentioned before, you can’t refinance a loan you cosigned without the participation of the primary borrower, in most cases. An exception to this rule may occur if the primary borrower fails to make payments for an extended period, and the loan ultimately becomes your responsibility.
However, you’ll have to examine your current loan agreement and speak with your lender to determine what’s possible or not possible.
Alternatives to Refinancing a Loan You Cosigned
The answer to the question, “Can I refinance a loan I cosigned?” is sometimes, unfortunately, “No.” If your primary borrower isn’t on board, or your credit score isn’t high, you’ll have a hard time finding a lender to refinance the loan you cosigned.
Luckily, you have other options. The option you choose depends on what your goal was in refinancing the loan: whether it was to have your name removed or to get better rates or terms.
Here are some of your choices if you can’t refinance the loan you cosigned.
Your current lender might offer cosigner release. This is where, after a number of eligible, on-time monthly payments, the primary borrower on the loan can apply to have your name removed. The responsibility for repaying the loan reverts entirely to the primary borrower, and you’re no longer liable for any part of it.
Cosigner release is a valuable option because it will lower your debt-to-income ratio and free up your credit. If you have a high debt-to-income ratio, you can have trouble making large purchases, like buying a house. And being a cosigner on a large, private student loan is one of the most significant things that might increase your debt-to-income ratio.
If your primary borrower is responsible for making payments every month, and they’re on board with applying for co-signer release, you might be able to take advantage of this option. However, not every lender offers a co-signer release.
Pay Off the Loan
If your goal in refinancing a student loan is to improve your credit and debt-to-income ratio, the most obvious option is to pay off the debt. However, this usually isn’t a viable option for most borrowers. But, if you happen to have savings in an amount sufficient to pay off the loan, you could arrange a deal with the primary borrower where they pay you, instead of the lender.
For example, if your primary borrower pays $100 per month on a $10,000 student loan that you cosigned, you could pay off the loan in full. Then, the primary borrower could make the payment of $100 per month to you, instead.
This will only work if you and your primary borrower stick to the agreement, and you trust you’re willing to take the hit if your primary borrower fails to pay you.
You’ll also want to make sure your lender doesn’t have any prepayment penalties.
Pay the Loan with Another Loan
When you take out a refinance loan, you’re essentially paying off one debt with another. If you can’t directly refinance a loan you cosigned, you might still be able to go through a similar process.
To do so, you could take out a personal loan or another type of debt, and then pay off your outstanding debt with those funds. Then, follow the point above to hold your primary borrower responsible for repaying the debt.
If you go this route, however, make sure you read the fine print of both your current loan and your new loan. The interest rates on the new loan might appear to be better than the old loan, but they might be variable rates that increase over time. The old loan might have prepayment penalties that make paying off the debt early a bad choice.
Additionally, both lenders might have other restrictions when it comes to using debt to pay off debt. If you choose this option, it might be wise to speak with a debt counselor or advisor first.
Can I Refinance a Loan I Cosigned? Bottom Line
Technically speaking, you can’t directly refinance a loan you cosigned. However, you can refinance the loan if the primary borrower works with you.
If you choose to refinance a loan you cosigned, make sure to consider all of the options included above. Most importantly, shop around before you commit to one loan refinance service. You can get significantly better rates and loan terms by choosing the lender that suits you best.
Compare the Best Student Loan Refinance Rates
Here are our top student loan refinance picks for 2019
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Student Debt Relief Loan Refinancing Advertiser Disclosure
College Ave: College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
College Ave Refi Education loans are not currently available to residents of Maine.
1 – The 0.25% auto-pay interest rate reduction applies as long as the borrower or cosigner, if applicable, enrolls in auto-pay and authorizes our loan servicer to automatically deduct your monthly payments from a valid bank account via Automated Clearing House (“ACH”). The rate reduction applies for as long as the monthly payment amount is successfully deducted from the designated bank account and is suspended during periods of forbearance and certain deferments. Variable rates may increase after consummation.
2 – $5,000 is the minimum requirement to refinance. The maximum loan amount is $300,000 for those with medical, dental, pharmacy or veterinary doctorate degrees, and $150,000 for all other undergraduate or graduate degrees. Information advertised valid as of 04/26/2019. Variable interest rates may increase after consummation.
3 – This informational repayment example uses typical loan terms for a refi borrower with a Full Principal & Interest Repayment and a 10-year repayment term, has a $40,000 loan and a 5.5% Annual Percentage Rate (“APR”): 120 monthly payments of $434.11 while in the repayment period, for a total amount of payments of $52,092.61. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.
ELFI: Subject to credit approval. Terms and conditions apply. To qualify for refinancing or student loans consolidation through ELFI, you must have at least $15,000 in student loan debt and must have earned a bachelor’s degree or higher from an approved post-secondary institution.
LendKey: Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
CommonBond: Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate.
Splash Financial: Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval.com
Earnest: To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest’s fixed-rate loan rates range from 3.89% APR (with autopay) to 7.89% APR (with autopay). Variable rate loan rates range from 2.50% APR (with autopay) to 7.27% APR (with autopay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms of 10 years or less. For loan terms of 10 to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 0.26% and 5.03% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of April 23, 2019 and are subject to change based on market conditions and borrower eligibility.
Auto Pay Discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 04/23/19. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice.
Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 303 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, e-mail us at firstname.lastname@example.org, or call 888-601-2801 for more information on our student loan refinance product.