Should I Refinance Student Loan Debt with a Co-Signer?
BIG Ideas:
- Having a co-signer when refinancing your student loans could help you qualify for a lower rate, which can save a significant amount of money on interest.
- Understand that your co-signer is responsible for your debt and any late fees or penalties assessed if you cannot make the monthly payments.
- If you have a lower credit score that prevents you from qualifying for a loan on your own or getting a lower rate, a co-signer could be a wise choice.
You’ve proven you’ve got the smarts to graduate college. Now, you’re thinking of using those smarts to make an important financial decision to refinance your higher-interest student loan debt.
It’s a bright idea.
Refinancing could help lower your monthly payments, free up some breathing room in your budget, and save you hundreds of dollars in interest. But to get that refinance loan and the best possible rate, you must have a strong and established credit score, which at this stage of your life, you may not have.
There is a solution: getting a co-signer on your refinance loan.
But before you ask Mom, Dad or Aunt Edna to co-sign, there are some pros and cons to having a co-signer that you should know about. Let’s review them:
The Pros of Refinancing With a Co-Signer:
Having a co-signer can help you:
- Qualify for a lower rate. A lower rate can lower your monthly payments by reducing the interest you must pay.
- Improve the term of your student loan. You can choose from a shorter or longer loan term, depending on your budget and other financial goals.
- Repay your debt sooner. With a shorter term, you can repay your loan sooner and lower the interest you’ll pay overall.
- Enhance your credit. If you make consistent, on-time payments, you can improve your credit score.
The Cons of Refinancing with a Co-Signer:
Some of the drawbacks of refinancing with a co-signer include:
- A long-term financial burden. A co-signer is legally responsible for the loan if you fail to make payments, which could adversely impact their credit and reduce their chances of getting a loan they may need in the future.
- Potential for strained relationships. If you’re unable to make your payments on time, it could result in the deterioration of your relationship with your co-signer.
- Difficulty releasing the co-signer. Not all Lenders offer a cosigner release option. In order for your cosigner to get out from under the obligation, you may have to refinance (again) on your own without a cosigner. For those that do offer cosigner release, it may be difficult to achieve. Some may require that you make a certain number of payments on time before they will consider releasing your co-signer. You may also be required to have a certain credit score and meet other underwriting criteria before the cosigner can be released.
- Loss of federal benefits. Refinancing student loans like Direct Subsidized/Unsubsidized or Federal Perkins Loans into a private loan could result in loss of federal loan benefits, such as income-driven repayment plans, forgiveness programs, and deferment options. So, before you leap into student loan refinancing, make sure you don’t need these loan protections.
How to Decide if Refinancing with a Co-Signer is The Right Choice
In general, refinancing with a co-signer makes sense if you have:
- A low credit score. This would prevent you from qualifying for a better rate, which could save you more money. Having a co-signer with a strong credit rating can help you secure the low rate you need to reduce interest charges.
- Stable income. If you have a good financial foundation, including a stable income, refinancing with a co-signer could work. If, however, your income isn’t steady, which could impact your ability to make payments, refinancing may not be the right move.
Refinancing your student loans can be a smart way to reduce the cost of college and free up room in your budget. But before you secure a co-signer, make sure you both know what’s involved and that you can make your payments on your own.
Brazos Makes Refinancing Easy and Affordable
For more than 40 years, Brazos Higher Education has been helping make education more affordable for students. As a Texas non-profit, we offer great rates and no fees on student refinance loans. Contact us to learn more.
