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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.”
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