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Updated on Wednesday, December 12, 2018
If you thought you were too grown up for a cosigner, think again.
Even if you’re already living on your own and making some money, a cosigner could help you score a lower interest rate on a refinanced student loan. Here are five steps to follow if you’re looking to refinance student loans with a cosigner:
1. Confirm that you’d benefit from a cosigner
If you’ve been nudged to find a cosigner after getting rejected on your student loan refinancing application, you might already understand why. Maybe your credit score is too low, or perhaps your debt-to-income (DTI) ratio tilts in the wrong direction.
Regardless of where you are in the application process, the first step is to consider the holes in your background that could be filled by a cosigner. Examples include:
Most top-rated lenders require a minimum score in the high 600s, although you’d need an even stronger score to unlock their lowest rate offerings.
Also, you might need a higher score if you’re applying solo. Splash Financial, for example, requires a 700 if you’re applying on your own, but 670 if you’re piggybacking on another borrower.
Lenders might also set a baseline for your income before even considering your application. EdvestinU, for example, requires that you bring in at least $30,000 per year.
Refinancing companies eye borrowers with a DTI of less than 40%. You can calculate your ratio by dividing your monthly debt payments by your monthly gross income.
If you have credit card debt weighing you down, for example, your DTI could take a big hit. Compare your numbers with lenders’ requirements to see where you might be falling short. If you need a cosigner to help you qualify — or lower your rate further — then move onto the next step…
2. Find lenders that fit your needs
Think about what you most want in a student loan refinance company. If you’re fed up with the customer service of your current lenders, for example, you might prioritize an online lender that’s known for its helpfulness, or a brick-and-mortar bank that offers in-person assistance.
Here are other questions to weigh when imagining your ideal lender:
- Does it advertise competitive interest rates?
- Does it have repayment term lengths that fit your future budget?
- Does it charge excessive loan fees or impose unnecessary penalties?
- Does it offer forbearance if you were to lose your job?
- Does it feature any additional perks, such as rate discounts or community borrower programs?
Once you’ve found one or more lenders that check off these boxes, ensure that they check off one more: Does it allow cosigners? If it doesn’t, move to the next lender on your list. Ideally, you’ll identify at least a few that meet most or all of your needs.
3. Lock in your cosigner
A good cosigner is someone you’re comfortable talking to about money. You can put a cosigner candidate to the test by asking about their credit score and income. You’ll need to know these numbers anyway to ensure they’re creditworthy enough to serve in a cosigning capacity.
Once you’ve found someone with the financial chops to be your cosigner — it could be a parent or even a friend — ensure they understand the responsibilities of the role. Chiefly, they should know they’d be on the hook for repayment if you default on the loan. They might also want to understand how serving as your cosigner could affect their ability to borrow for their own financial goals.
To get your cosigner on board, you might lay out a potential repayment schedule, proving your ability to repay the loan on your own and keeping them in the background. Alternatively, if your cosigner has agreed to help more directly with payments, it’s best to make these plans in advance.
With the more difficult talks out of the way, you might also explain the concept of cosigner release. This feature, which is offered by some (but not all) top-rated lenders, allows you to remove the cosigner from your loan agreement once you’ve made a specified number of prompt payments. If you refinance with LendKey, for example, you might be able to release your cosigner after 12 to 36 months of payments.
4. Ready your cosigner for applications
Be aware that student loan refinancing companies have different application processes for borrowers and their cosigners.
Some lenders, such as Laurel Road Bank and ELFI, ask you and your cosigner to apply in succession. You would note on your application that you’re applying with this de facto sponsor. Then you’d add their name and email address to the application.
Your cosigner would be notified via email and asked to complete their end of the application. At Laurel Road, for example, your cosigner might be asked to upload digital copies of two recent pay stubs and their driver’s license or state ID, as well as a copy of their social security card.
Others lenders, including SoFi, encourages you to apply on your own before including a cosigner the second time around. SoFi says on its website that applications which include cosigners could take one to two weeks longer to process.
Watch out for your chosen lender’s application rules. At Education Loan Refinance, for instance, you and your cosigner must apply with different email addresses. And at SoFi, your cosigner has to consent to cosign before either of you can see the interest rates for which you’ve qualified.
5. Make a final decision alongside your cosigner
Hopefully, you and your cosigner found multiple lenders offering the loan terms that fit your borrowing situation. It’s best to apply to at least a few lenders so that you can compare offers.
Although interest rate will be a top factor when choosing a lender, don’t forget about other elements. It might be important to your cosigner that the lender offers a pathway to forbearance in case you need to pause your repayment. They might also be interested in lenders offering cosigner release.
Both you and your cosigner will need to be on board with the choice of lender. Be prepared to face a decision between a lender offering the lowest rate and a lender offering greater loan protections. It might not be an easy decision, but, hey, you now have a teammate with whom you can talk it through.
What lenders look for in a cosigner
When it comes to cosigners, lenders are seeking exceptionally reliable borrowers. They’re also looking for someone who has what you lack, whether it’s a thicker credit file or more cash coming in every month.
More specifically, here are three things that lenders want to see from your cosigner:
Strong credit history and credit score
Aside from not sporting black marks like a prior bankruptcy, your cosigner should have a history of repaying their debt on time. A credit score in the 700s goes a long way, too — it might even be a necessity.
If you’re refinancing up to $150,000 at Splash Financial, for example, your cosigner must have a score of at least 720 (plus an income of $42,000 or more).
A debt-to-income ratio that’s not out of whack
It’s OK if your cosigner has debt of their own — but having too much debt is another story.
Lenders like to see a DTI of less than 40%. You can calculate your cosigner’s DTI by dividing their monthly debt payments by their monthly gross income.
Stable employment history
High income could be keeping your cosigner’s DTI in check, but that’s not the only employment factor under consideration. Lenders also want to see that your cosigner has held jobs for consistent periods and isn’t a huge risk to suddenly find themselves out of a paycheck.
Lenders need to know that if your cosigner is called upon, they could repay your debt without trouble. They also want to ensure the cosigner would be willing to do so. Your cosigner can expect to sign a host of loan documents explaining their responsibilities.
On your end, you still might be taken aback by your need for a cosigner. After all, student loan refinancing typically offers borrowers reduced interest rates and the ability to remove cosigners from old loans.
The truth is that it’s possible you’ll need this new cosigner — or another assist from your original one — to unlock the lowest of low rates. But don’t worry, even grownups need a hand once in a while.