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As a college student, it's tough to get approved on your own for private student loans, which may lead you to ask a parent to cosign the loan. Unfortunately, cosigning the loan will add the loan and its monthly payment to your cosigner's credit report, which can impact their ability to get credit in the future. Also, if you miss a payment, it'll damage both your and your cosigner's credit scores.
The good news is that some lenders allow you to remove a cosigner from your student loan. Removing a cosigner typically requires you to make a certain number of payments and undergo a credit check. The actual criteria can vary from lender to lender, but generally you'll need to take the following steps to remove a cosigner from your student loan.
1. Make On-Time Payments
If your lender offers cosigner release, the first requirement is generally to make a certain number of consecutive on-time monthly payments. Depending on the lender, the requirement may be 12, 24, 36 or even 48 payments.
These payments must be full payments of both principal and interest, and they may not include any payments you made while you were in school or during your grace period after graduation.
2. Gather the Paperwork
Once you've completed the payment requirement, you'll need to submit an application. Depending on which lender you're working with, you may need to meet other criteria, such as being a U.S. citizen or permanent resident, being the age of majority in your state, not having any delinquencies on other loans with the lender or not having other loans in forbearance or deferment.
You'll also need to provide income documents, such as pay stubs or tax returns, proof of graduation and others. Check with your lender to find out what's required.
3. Submit to a Credit Check
A cosigner agrees to pay your student loan if you can't, so in order to release them from that obligation, you'll need to prove that you're able to make the payments on your own without anyone to fall back on.
This means submitting to a credit check. In addition to reviewing your credit history, the lender will also consider your income, other debts and other factors.
Unfortunately, this can be difficult if you only graduated one or two years ago and haven't had much time to build your credit or establish a solid income.
Alternatives if You Can't Release a Cosigner
Not all private lenders offer a cosigner release program, and the ability to release a cosigner is much more common among in-school private loans than for refinance loans. So, if your lender doesn't offer the chance to remove your cosigner or you don't qualify based on its criteria, here are some potential alternatives you can pursue.
Refinance the Loans
Refinancing private student loans doesn't have the same drawbacks as refinancing federal student loans. You're not losing access to federal benefits because you didn't have them in the first place.
What's more, refinancing could also allow you to secure a lower interest rate and choose a repayment plan that better fits your budget.
While you may not be eligible for cosigner release, you may be able to refinance the student loans on your own with another lender. Just keep in mind that while you may get approved, you still typically need a high credit score and a strong income to qualify for the best interest rates and repayment terms.
Accelerate Your Repayment
If your goal is to eliminate the debt more quickly for both you and your cosigner, consider strategies to pay off the balances more quickly.
For example, you may choose the debt avalanche or debt snowball method to eliminate high-interest or low-balance loans first. You may also look for opportunities to earn extra income to make additional payments. Even small efforts can pay off in the long run.
Improve Your Credit
If refinancing your loans isn't a viable option, take the time to work on building your credit score so that your chances of getting approved for cosigner release or refinancing can improve.
Start by checking your credit report and credit score to get an idea of where you stand. Then, pinpoint areas where you can improve. For example, you can pay down high credit card balances, get caught up on past-due payments, have a parent add you as an authorized user on their credit card account or dispute inaccurate credit report information.
This process can take time, but if you get started early, you can easily do it while you're working on your lender's payment requirement.
Create a Plan for Your Student Loan Repayment
Regardless of how you approach releasing your cosigner from their obligation on your student loans, it's important to have a plan for how you want to pay down your debt.
The sooner you can pay it off, the sooner you'll have that extra cash flow and the easier it will be to work toward your other financial goals, such as buying a house, saving for retirement, bolstering your emergency fund and more.