Refinancing with Earnest
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You wanted to help a loved one, so you co-signed on their student loans. At the time, it seemed like a good idea. But now, you’re not so sure.
Maybe you are concerned that the borrower won’t pay. Perhaps you’re already paying the debt anyway and want to refinance at a lower interest rate. No matter the reason, refinancing student loans as a co-signer is, unfortunately, practically impossible.
But that doesn’t mean you have no chance at all. Don’t give up hope before you try the following strategies.
Why would I refinance a loan I co-signed?
First of all, why would you care to refinance a loan as the co-signer?
If you aren’t making the monthly payments, it might not matter what the amount is or what interest rate the borrower receives. However, the story might change if you suddenly end up making most of the payments.
“In some cases, a co-signer is afraid that the primary borrower can’t make payments anymore,” said Adam S. Minsky, an attorney who specializes in student loan law. “Some co-signers end up making the payments, just to avoid the credit hit that comes with missed payments.”
Minsky pointed out that a co-signer faces credit consequences if the primary borrower misses payments or is habitually late. In order to save their credit, a co-signer might take over payments. Once this happens, Minsky said, co-signers suddenly become interested in making sure they get the best interest rates and that payments are affordable.
“If you’re making payments anyway, you might think you’re entitled to refinance the debt in your name so you have more control,” said Minsky. Unfortunately, that’s not how refinancing works.
Why can’t I refinance a loan I co-signed?
Even though you are legally responsible for the debt, Minsky said, the primary borrower is still the person who “owns” the obligation. That makes a difference.
“It’s still their debt, even if creditors can come knocking on your door to collect,” he said. The loan is in their name, and they have the right to make the decisions about what to do with it.
As a result, refinancing a student loan — or any debt — which you have co-signed can be tricky. “In my mind, it shouldn’t be a problem,” said Minsky. “However, lenders see it differently. You might be able to find a lender willing to let you do this, but it’s unlikely.”
However, just because you can’t refinance a loan you co-signed, it doesn’t mean you don’t have options. Here are some ways to approach loans as a co-signer looking to refinance.
Ask the primary borrower to refinance, and co-sign the new loan
Since you can’t refinance a loan you co-signed, the next solution is to try to convince the primary borrower to refinance the loan. You can be a co-signer on that loan as well.
Try to convince the primary borrower that refinancing makes sense. Show the primary borrower that they can save money through refinancing, as well as see more affordable payments. If you have good credit, you can co-sign the new loan and hopefully get the best terms on it.
This gambit might fail, though, if the primary borrower has already messed up. “Refinancing, especially for student loans, requires excellent credit and a good income,” said Minsky. “Even then, it can be tough.”
If the primary borrower didn’t tell you about trouble making payments in time for you to take over, the debt might already be dragging on your credit score, as well as on the primary borrower’s credit score. That means the borrower might not qualify to refinance — even with you co-signing.
“When you are a co-signer, it’s important to sign in every month and touch base with the primary borrower,” said Minsky. “That way you can save the situation before it causes you problems.”
Have your name removed as co-signer
Some lenders are willing to remove co-signers from loans. However, the primary borrower has to prove that they can handle the loan on their own. In reality, few student loan lenders will remove a co-signer, although it is possible in some cases.
“Maybe you were a co-signer to help someone out, but you don’t want to take full responsibility for the loan,” said Minsky. “It’s important to be clear about this before you sign on the dotted line. Be clear about your expectations that the primary borrower will take over the loan entirely.”
If the primary borrower can’t prove capability to take over payments, you’re stuck. Also, depending on the lender, even if the primary borrower is able to manage the payments on their own, you might still not be able to remove your name as co-signer, Minsky said. “It’s a lender-by-lender thing,” he said.
Stay on top of the payments
In the end, there’s not much you can do as a co-signer, other than keep track of what’s going on with the loan and make sure it gets paid as agreed.
You can ask the primary borrower to refinance or try to remove your name from the loan, but none of that matters if the borrower isn’t motivated by saving money or by your relationship to make the move.
“Unfortunately, there is no incentive if the borrower doesn’t want to pay,” said Minsky. As the co-signer, you have to decide if taking on the payments is worth it to avoid the hit to your credit. “It’s a reason for the co-signer to make the payments no matter what happens.”
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 firstname.lastname@example.org, or call 888-601-2801 for more information on ourstudent loan refinance product.
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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
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|2.47% – 5.87%1||Undergrad & Graduate||Visit Earnest|
|2.80% – 6.22%2||Undergrad & Graduate||Visit Laurel Road|
|2.51% – 8.03%4||Undergrad & Graduate||Visit Lendkey|
|2.48% – 6.25%5||Undergrad & Graduate||Visit CommonBond|
|2.57% – 8.17%6||Undergrad & Graduate||Visit Citizens|