What to Consider If Refinancing Student Loans to Remove Cosigners
Paying for college can be frustrating. While most federal student loans don’t require a cosigner, you can’t always pay for college solely using federal student loans. If you had to take out private student loans, you may have had to have a cosigner. Not all students have a stellar credit history, if they have a credit history at all. Instead, lenders use cosigners with good credit to limit the risk they take by lending you money. Luckily, there is a way you can relieve the stress your cosigner faces by refinancing student loans to remove cosigners. However, if you do refinance your student loans, everything won’t remain the same after you refinance. Look out for the following potential changes.
Your Interest Rate and Type May Change
When refinancing student loans to remove cosigners, the interest rate on your loan may change. Interest rates are usually based on a combination of the current economic situation, your credit score and your cosigners credit score. Since your goal is to remove cosigners when refinancing, your credit score will have a larger impact on your interest rate. If you have been able to establish an excellent credit score, you should be able to get a loan with one of the better interest rates available. However, if your credit score is less than stellar, you may have an interest rate on the higher end of what is available today.
Another important factor to consider is the type of interest rate your refinanced loan will have. Some student loans have a fixed interest rate, meaning the interest rate never changes, while others have a variable rate that changes based on a specified base rate plus a premium. Make sure you compare both the interest rate and interest rate type you’re offered on your new loan with your current loan. Removing a cosigner may not be worth a large increase in your interest rate or a change from a fixed interest rate to a variable interest rate if your cosigner doesn’t mind remaining a cosigner.
Your Repayment Period and Payment Amount May Change
Interest rates aren’t the only thing to consider when refinancing your student loans. Refinancing your student loans will result in a new loan that often will have a different repayment period than your old student loan. The length of your repayment period will directly affect your monthly payment. Depending on the loan you pick, your newly refinanced student loan could be repaid over a longer period or a shorter period than the number of payments remaining on your current loan. A longer repayment period will generally result in lower monthly payments but more interest paid over the life of the loan if all other variables are equal. Similarly, a shorter repayment period will have the opposite effect.
Your Relationship with Your Cosigner Could Improve
Cosigning a loan is a big deal. By cosigning a loan, the cosigner essentially says if you don’t pay the loan back, the cosigner will. Missed payments will affect both your credit and the cosigner’s credit. As you can imagine, being a cosigner can be stressful for the cosigner and add unnecessary stress to your relationship with your cosigner. Refinancing student loans to remove cosigners may be exactly what your relationship with your cosigner needs. Once the weight of being a cosigner is lifted, your relationship with your cosigner could improve. Unfortunately, it may take more work to repair the relationship than simply refinancing your student loans if there were major fights over missed payments or damaged credit was involved.
Shop for the Best Loan Options
Make sure to shop around for the best loan options if you do decide to refinance your student loans to remove a cosigner. Once you take the above into consideration, finding the best possible loan for your situation could save you hundreds or thousands of dollars in interest payments over the life of your loan.