Refinancing with Earnest
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Adding a cosigner on a loan – from a personal loan to an auto loan to a mortgage – can help you achieve better terms than if you were to apply on your own.
But did you know that you may also be able to take advantage of the benefits of a cosigner when refinancing student loans? Adding a cosigner when refinancing can make it easier to qualify, plus get the lowest interest rates.
While someone cosigning a student loan does have benefits for you, it’s important carefully weigh these against potential downsides. Here’s what you need to know about the options for refinancing your student loan with the help of a cosigner.
Cosigning a student loan: What lenders require when refinancing
The specifics for refinancing student loans with a cosigner depend on the particular lender. Some lenders will let you apply for student loan refinancing with a cosigner from the get-go. Others will allow you to re-apply for a loan with a cosigner only after an initial rejection.
There are several underwriting factors lenders consider. Applying for student loan refinancing is often the only way to find out if you qualify on your own or need a cosigner.
Some refinancing companies, such as Earnest and CommonBond will first process your refinancing application without a cosigner. If you don’t qualify on your own, these lenders will then assess your eligibility with a cosigner. Rather than reject your application outright, they might invite you to find a cosigner and re-apply.
Other companies, such as PenFed and Citizens Bank, allow you to apply with a cosigner from the start. This can be helpful if you’re unsure you’ll qualify. As Citizens Bank states in its FAQ section, “Although a co-signer is not required, if you have little or no credit history, we strongly encourage you to apply with a qualified co-signer to increase your chances of being approved.”
Similarly, Laurel Road makes it clear that borrowers with incomes below $50,000 likely need a cosigner to qualify.
Some lenders will also consider the higher of you and your cosigner’s two credit scores to set interest rates. This will help you get the best deal on student loan refinancing. Adding a cosigner can also make sense if they’re someone you share finances with, such as a spouse.
What will your lender look for in a cosigner?
Not only do you need to find the right lender – you also will need a cosigner who is well-qualified and willing to sign with you.
To increase your chances of being approved for student loan refinancing and qualifying for the best rates, your cosigner should meet the following standards:
1. Good credit
The most common reason a primary borrower might turn to a cosigner is bad credit or an insufficient credit history. Different lenders have different credit requirements for their primary borrowers and cosigners. However, you can assume that a cosigner with a credit score of 700 or above will offer you the best chance of landing the loan. They’ll also most likely qualify for more attractive rates.
2. Sufficient income
Many primary borrowers looking to refinance student loans are not yet established in their careers, which means their income might be too low or unreliable to qualify on their own. Lenders want to see that cosigners have sufficient, steady income to pay off the loan if the primary borrower cannot make the monthly payments.
Your bank will ask for both of your pay stubs, among other documents, to determine your income and debt-to-income ratio. If your cosigner makes a good living but already owes a great deal compared to their income, they might not qualify for the loan.
Your lender will calculate the debt-to-income ratio, including the payment of the loan you are applying for. Even if your cosigner does not intend to make payments, the cosigned loan might push your cosigner above the lender’s preferred debt-to-income ratio.
3. Work and home stability
Lenders want to see that cosigners have a stable work and residence history. That means a cosigner who earns a high income but has frequently switched jobs might not be approved since his work history may appear unstable.
Similarly, a cosigner who has lived in the same residence for five or more years will be looked at much more favorably than a cosigner who moves every two years. This stability is another reason why a cosigner can help a young primary borrower. Young adults just out college haven’t had the time to build up a stable work or residence history.
The process of refinancing student loans with a cosigner
The process of adding a cosigner to a loan is similar to applying for a loan, with a couple added steps. Here’s the process to follow when you’re refinancing student loans with a cosigner.
1. Find a lender that allows cosigners on student loan refinancing
We’ve named a few lenders above that allow cosigners when refinancing student loans, and also offer great rates and other benefits. Do your research and compare lenders.
2. Get a cosigner onboard to refinance student loans
Hopefully, you have someone in mind who meets the qualifications outlined above to be a good cosigner. You’ll need to ask this person if they are willing to be your student loan cosigner. Make sure each of you understands the risks and responsibilities that come with cosigning before you agree.
3. Collect documents and information needed to apply
You will need to be ready with basic personal information for both you and your cosigner. Collect your Social Security number, employment information, financial information, monthly mortgage or rent payments, and permanent address.
If your cosigner prefers not to share this sensitive personal information with you, that’s okay. They will just have to be involved in the application process to provide their relevant information as needed.
3. Compare student loan refinancing rates
Typically, the first step in applying for student loan refinancing is not a full application, but a credit check. Most lenders will ask for preliminary information and use that to perform a soft credit pull. This gives them a snapshot of your creditworthiness and allows them to provide you an estimate of the rates for which you qualify.
Whether you include a cosigner at this stage will depend on the lender you choose and how they handle adding cosigners.
4. Apply for student loan refinancing
Once you’ve picked an offer that you like, it’s time to apply for student loan refinancing. Make sure you accurately provide all information for both yourself and your cosigner. Provide any documentation of income or other financial records the lender asks for.
5. Sign the student loan refinancing agreement
If you’re approved for a loan, the lender will send you a final loan agreement laying out the terms of refinancing. This loan agreement will include your cosigner and outline their liability for the new student loan. Both you and the cosigner will need to sign and agree to the terms of the contract.
Either party can back out of the loan at any time before the primary borrower signs off on the final loan terms.
6. Repay the refinanced student loans with a cosigner
The first payment due date and monthly payment amounts will be outlined in the loan agreement. Once you and your cosigner have signed on the dotted line, you will begin making payments each month.
It’s important to remember that your cosigner is not just there for moral support; they are legally responsible for repaying your loan should you default.
In some cases, you and your cosigner may choose to make repayment a joint effort. Make sure you both understand your agreed-upon repayment plan and schedule. This way, you can avoid someone accidentally missing a payment.
Understand the risks for your cosigner
If you have a family member, spouse, or parent cosigning a student loan with you. it may seem like the perfect solution to overwhelming student loan payments. However, there are potential problems that fall disproportionately on the cosigner.
That’s because cosigners share full responsibility of the loan with the primary borrower. Their liability for the loan can affect their own credit, for better or worse. It’s possible it could keep them from qualifying for other credit since the cosigned loan appears on their credit report.
Furthermore, if the primary borrower does not make consistent payments on the loan, the late or defaulted payments will negatively impact the cosigner’s credit score.
Can you release a cosigner after refinancing student loans?
Considering the risks a cosigner takes on, some student loan refinancing companies have options in place to allow primary borrowers to eventually release their cosigners.
Specifically, Earnest and Citizens Bank will both allow the primary borrower to discharge their cosigner after 36 consecutive months of on-time payments. However, most other lenders require cosigners to remain jointly responsible with the primary borrower for the life of the loan.
It’s also important to note that even the banks that do allow discharging of the cosigner still require the primary borrower to initiate the process.
Is it worth it to have a cosigner when refinancing student loans?
This situation comes with the potential to damage both your own and your cosigner’s financial standings and the relationship. As the primary borrower, you need to consider carefully before asking someone to cosign student loan refinancing.
In particular, make sure you have satisfactory answers to the following questions:
- Why do you need a cosigner? Do you need a cosigner because your credit score and money management skills are less than robust? That might be a warning sign that taking on a cosigner is a bad idea. It might be worthwhile to spend several months building credit so you can instead refinance on your own.
- How could this cosigned loan affect our relationship? Money issues have a way of sourcing relationships, and you will have to deal with uncomfortable relationship dynamics as well as financial stress if you have trouble making payments after someone has cosigned for you.
- What happens if either you or your cosigner passes away before paying off the loan? Generally, cosigners on private student loans and privately refinanced student loans are legally responsible for the debt if the primary borrower dies. And if your student loan cosigner dies, your debt might automatically enter default. Make sure you and your cosigner are completely clear on what to expect should the worst happen.
- Are you comfortable communicating with your cosigner? If the person you have chosen as your cosigner is not someone you’d feel comfortable sharing personal financial details with, you might want to rethink asking them to cosign your loan.
- Do you need a cosigner for student loan refinancing? The incredible rates that lenders offer for student loan refinancing may only be available to some primary borrowers if they take on a well-qualified cosigner. However, borrowers need to recognize that asking a friend or family member to be a cosigner is a major commitment, and it does not necessarily guarantee the best loan rates.
Use these questions to guide you through the decision of whether or not to refinance with a cosigner. Have open and honest discussions about the process of cosigning before you refinance your student debt.
Make sure you and your cosigner enter into a loan with your eyes open and commit to honest communication with each other throughout repayment.
Elyssa Kirkham contributed to this article.
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 5.87% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 5.87% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at email@example.com, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.57% – 6.98%3||Undergrad & Graduate||Visit SoFi|
|2.47% – 5.87%1||Undergrad & Graduate||Visit Earnest|
|2.47% – 8.03%4||Undergrad & Graduate||Visit Lendkey|
|2.80% – 6.22%2||Undergrad & Graduate||Visit Laurel Road|
|2.48% – 6.25%5||Undergrad & Graduate||Visit CommonBond|
|2.57% – 8.17%6||Undergrad & Graduate||Visit Citizens|