Graduation is done, you’ve landed a steady job and you’re ready to begin building your very own credit history. Ready to make the leap? Here’s how to remove a cosigner from your student loan.
Millions of college students and college graduates have student loans that another party, usually their parents, cosigned for.
This makes perfect sense. When you’re a college student or recent high school graduate, you don’t have the income or credit history to qualify for a large student loan. But you need these loans to cover tuition, so mom or dad steps in with an added signature.
But once you’ve graduated and are employed full-time, can you release the co-signer from your loan? It’s possible. If you have a steady income and good credit, you may just be able to do it.
But, now what is the first move?
In this article I’ll show you exactly how to remove a cosigner from a student loan.
Why You Want to Release Your Cosigner
A cosigner on a loan is contingently responsible for the payments on that loan. In short, that means that if you don’t pay your bills, they’ll have to. It also means that your late payments can affect their credit. Any late payment will show up on your cosigner’s credit report lowering their credit score. And should you default, your cosigner will also have a major derogatory entry on their credit report, seriously dragging down their credit score.
In the case of student loans, with their typically long repayment periods, you can shackle your cosigner to the account for decades. It’s better for all concerned if you get them removed from the loan when it’s possible.
But it’s also in your best interest to have your cosigner released. Should your cosigner die or file for bankruptcy before your loan is paid in full, the lender could call the entire outstanding balance due immediately. This won’t likely happen with federal student loans. But some private student loans include a clause that requires this.
I realize that this provision doesn’t sound fair, but that’s the reality. After all, the lender has agreed to make your student loan on the strength of your cosigner’s income and credit. If that person is no longer around, or no longer has legal capacity, the lender will lose that security. Should that happen, they can declare the loan to be due and payable.
As you can see, it’s not just your cosigner who is at risk on your student loan debt. The situation could quickly and unexpectedly turn against you, as well.
Federal Student Loan Cosigner Release Provisions
When it comes to federal student loans, releasing your cosigner is generally a non-issue. That’s because most federal student loans are available to students without the need to credit qualify. That means the student can get the loans without the need for a cosigner.
There is one exception: the Direct PLUS Loan.
Parents of undergraduate students and students participating in graduate or professional studies can obtain these loans. The Direct PLUS Loan does require credit qualification. So graduate and professional students without adequate credit history will need cosigners.
Should you need a cosigner to qualify for the loan, you cannot release the cosigner. The loan doesn’t have provisions to release the liability on a Direct PLUS Loan. You’ll either need to pay the loan in full or refinance it. You may also be able to consolidate a Direct PLUS Loan with your other student loans. In this process, you can release the cosigner from the PLUS loan.
Private Student Loan Cosigner Release Provisions
These days, many lenders offer student loans. Some private student loans offer specific cosigner release provisions in their agreements. Others do not. Among those lenders that do allow for cosigner release, the requirements vary.
It is vitally important that you determine if a private student loan lender allows cosigner release before even applying for the loan. Of course, if you already have a private student loan in place, you’ll need to find that lender’s cosigner release policy.
Private student loan lenders generally require you to complete a cosigner release application. It will be similar to the original loan application. The lender will naturally expect you to have significant income and credit qualifications on this application.
For the most part, private student loan lenders who allow cosigner release will require you to have made on-time payments for anywhere from 24 to 48 consecutive months. Generally, the provision requires that you have been the one making those payments.
The whole point is to demonstrate that you have the ability to service the loan without help from your cosigner.
In addition to making the payments on time, you’ll also be expected to qualify for the loan based on your own employment, income, and credit history. If you have significant credit problems on other loans, the lender may not approve the cosigner release, even if you’ve made all the payments on this particular loan on time.
Private student loan lenders may also restrict cosigner release in the event that you have exercised a forbearance provision.
Cosigner Release Policies by Popular Private Student Loan Lenders
It’s not possible to summarize the cosigner release policies of every private student loan lender available. However, the list below includes several of the more popular student loan lenders, as well as the general provisions of their unique cosigner release policies:
- Citizens Bank — Cosigner can be released after 36 on-time monthly payments.
- College Ave — The most recent 24 consecutive payments were made on-time and did not include any forbearance or workout programs for hardship reasons. The primary borrower must also earn twice the amount of student loan indebtedness, and not have any late payments on other obligations within the past 24 months.
- Discover Student Loans — Cosigner release is no longer permitted.
- DCU Credit Union Student Choice — Cosigner can be released after 48 months of on-time payments.
- PNC Bank — Cosigner can be released after 48 on-time monthly payments.
- SunTrust Bank — Cosigners may be released after 36 – 48 on-time monthly payments. Loans cannot be in forbearance.
- Wells Fargo — If the first scheduled payment is received on time, then the most recent 24 consecutive scheduled monthly payments must be made on time and in full, or, if the first required payment was not made on time, the most recent 48 consecutive scheduled monthly payments were made on time and in full. No forbearances or modifications were granted for hardship reasons during those consecutive monthly payment periods. The primary borrower must satisfy a full credit, employment, and income evaluation.
Cosigner release is not automatic! The provisions listed above are general in nature. Each lender may have more specific requirements that you may or may not meet.
In addition, it’s entirely possible that a lender will revise or even revoke their cosigner release policy at any time without warning. Check your lender’s policies once in a while so that you can stay abreast of any changes.
If someone cared enough about you and your education to sign their name on the dotted line of your student loan(s), you should feel lucky. You may not have been able to obtain the education you wanted or needed without that support.
However, once you’re done with school and established in your career, consider releasing any cosigners. The process, which can take some time on your part, protects both you and your cosigner.
Before obtaining a new loan, be sure to look into the release policies (if any exist with that lender). And if you already have loans, research the company’s current rules. Releasing your cosigner is not only the considerate thing to do, it’s the smart thing… for both of you.