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I’m the Cosigner: Can I Refinance the Loans?
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You wanted to help a loved one to pay for their college education, so you decided to be a cosigner on a student loan. At the time, it seemed like a good idea. But now, you’re hesitant.
Maybe you are concerned that the borrower won’t pay. Or perhaps you’re already repaying most or all the debt on your own. If this is the case, refinancing to a lower interest rate to remove yourself from the loan might sound like a good plan. But refinancing a student loan as a cosigner usually isn’t possible.
That doesn’t mean there’s nothing to be done — there are strategies that may help. Let’s look a little deeper into the problem, including the following issues:
If the primary borrower is regularly making monthly payments, you might not be concerned with how much he or she pays or what interest rate he or she received. But that might change if you end up paying most of the student loan bills.
“In some cases, a cosigner is afraid that the primary borrower can’t make payments anymore,” said Adam S. Minsky, an attorney who specializes in student loan law. Minsky said a cosigner faces credit consequences if the primary borrower misses payments or is habitually late. A cosigner, to save their credit, might take overpayments. Once this happens, Minsky said, cosigners suddenly become interested in making sure they get the best interest rates and that payments are affordable.
“If you’re making payments anyway, you might think you’re entitled to refinance the debt in your name, so you have more control,” Minsky said. But that’s not how refinancing works.
Even though you are legally responsible for the debt, Minsky said, the primary borrower is still the person who “owns” the obligation. That makes a difference.
As a result, refinancing a student loan — or any debt — that you cosigned can be tricky. “You might be able to find a lender willing to let you do this,” Minsky said. “But it’s unlikely.”
You do have other options. Here are some ways for a cosigner on a student loan can approach refinancing.
Since you can’t refinance a loan you cosigned, the next solution is to ask the primary borrower to refinance the loan. You can be a cosigner on that loan if you choose.
If the primary borrower needs convincing to refinance, show them whether they can save money through refinancing by reducing monthly payments. If you have good credit, you can cosign the new loan and potentially help the borrower get favorable terms on it.
But if the primary borrower has already missed payments, negatively affecting their and your credit score, lenders might not approve you. To avoid this, it’s important to keep close tabs on the loan in repayment and keep in touch with the primary borrower about their financial situation, Minsky said. “That way you can save the situation before it causes you problems,” he said.
Some lenders are willing to remove cosigners from loans. The primary borrower has to prove, however, they can repay the loan on their own. If you move forward with this plan, make sure the borrower understands they’ll have to make the entire payment without your help — and their credit will be impacted if they can’t.
If the primary borrower can’t prove capability to take over payments, you won’t be able to come off the loan. Also, even if the primary borrower can manage the payments on their own, the lender’s policies might prevent you from being removed as cosigner.
In the end, as a cosigner on a student loan, it’s crucial to keep track of it and make sure it gets paid as agreed.
You can ask the primary borrower to refinance or try to remove your name from the loan, but make sure both you and the borrower understand the potential pros and cons of each approach. That way, you’ll both be able to decide how best to manage the loan alongside your other financial obligations.