If you took student loans to pay for college, there’s an excellent chance that you did so with the help of cosigner. After all, as a student, you probably had limited income and even less credit history. The cosigner was necessary in order for you to get the loans. But now that college is over, you may want to remove a cosigner from your student loans. We’ll show you how to do that.
The Many Reasons to Remove a Cosigner from Your Student Loans
Even if you aren’t excited at the prospect of removing your cosigner, there are whole bunch of reasons why your cosigner might want to be taken off.
First, the cosigner – typically your parents – cosigned the loan because you were at a point in your life where you couldn’t qualify for it by yourself. But now that you’ve graduated and are earning an income, they’re probably hoping the entire arrangement comes to an end soon.
Let’s face it, whenever someone cosigns a loan, the experience on that loan will be reflected on their credit reports. That means any payments that you miss will show up as a strike on your cosigner’s credit report.
And even though you may have an outstanding payment record thus far, a student loan that stretches over 10, 15 or 20 years holds the potential not only for a missed payment, but maybe even for a default. The derogatory information will be reflected in your cosigner’s credit report and credit scores, even though they didn’t cause them to happen.
Negative credit information can stay on your credit report for seven years or longer. That means that a late payment, or a series of late payments, can haunt your cosigners for years. That could result in them having to pay a higher interest rate on a credit card, a car loan, or even on a mortgage. Under extreme circumstances, it can even result in a loan declination.
This is not a situation you should ever want to subject your cosigner to. But if that isn’t sufficient motivation to remove a cosigner from the loan, there is one that can affect you personally, and even turn out to be a financial disaster.
If your cosigner files for bankruptcy or passes away, the lender can call the loan in. That is, they can require that the entire remaining balance be paid in full.
The whole purpose for the cosigner on your loan is to provide the lender with extra security in the event that you default. If your cosigner dies, or is financially incapacitated by bankruptcy, the lender will not be able to pursue the cosigner after your default.
The process is called “auto-default” and it applies to both government and private student loans. You can read all about it in Sallie Mae Under Fire For Death-Induced Defaults.
Speaking of Sallie Mae…
Getting a Cosigner Released from a Sallie Mae Loan
As you might imagine, getting a cosigner released from a Sallie Mae loan is not a simple process. Only the primary borrower can apply for the release. The release will be granted based on his or her credit profile and financial strength. In other words, you have to prove to Sallie Mae that you can now carry the loan on your own financial strength.
Here is the list of the requirements in order to obtain a cosigner release, but you can get the full picture of the process at the Sallie Mae Cosigner Release page:
- Submit a signed and fully completed application.
- Meet the age of majority requirements in their state of residence (be old enough to enter into a legally binding contract which is 18 years of age in all states except: Alabama (19), Mississippi (21), Nebraska (19), and Puerto Rico (21)).
- Provide proof of graduation or completion of certification program (a copy of the borrower’s diploma and/or transcript for the loan(s) on which cosigner release is requested).
- Be a U.S. citizen or permanent resident at the time the request is submitted. If the borrower’s citizenship status changed since the loan application was submitted, proof of citizenship is required.
- Provide proof of income (e.g. most recent W2, most recent tax return, printed pay stub within the past 90 days, SSI or Disability award letters).
- Be current on all Sallie Mae serviced loans for the past 12 months immediately before applying.
- Demonstrate a satisfactory payment history on each loan requested for release immediately before applying by paying ahead an amount equal to the required 12 principal and interest payments or by making the required 12 on-time principal and interest payments. Interest or fixed payments made during the in-school and separation period(s) do not count towards this requirement.
- Have had no student loan(s) in a hardship forbearance or modified repayment program (including Graduated Repayment Period) for the past 12 months immediately before applying.
- Demonstrate the ability to assume full responsibility for repayment of the loan(s) individually.
- Pass a credit review that demonstrates a satisfactory credit history including but not limited to no: open bankruptcy, open foreclosure, student loan(s) in default, or 90 day delinquencies in the last 24 months.
Getting a Cosigner Released from a Private Student Loan
While Sallie Mae has a standard process to remove a cosigner, the situation can be more complicated when it comes to private source student loans. Since there are different banks that offers loans, each will have its own policy in regard to releases.
One of the problems you may run into is that the lender may not be forthcoming in providing you with release information. After all, your cosigner represents additional security for the lender, and they won’t be anxious for that arrangement to disappear.
Check with your lender’s website, searching for the term “student loan cosigner release.” Failing that, you may need to call the bank student loan lending department. If you do, be sure to be both patient and persistent. You may need to speak with several parties in order to find the information that you need. When you do, make sure to get names and dates, and request plenty of email confirmations.
As noted above, each bank will have its own policy in regard to releasing cosigners. Here are some examples of the cosigner release requirements for large private student loan lenders:
- Wells Fargo -The primary borrower must meet credit and income standards, and must have 24 consecutive on-time payments. If the first payment was not made on time, then there must be 48 consecutive on-time payments.
- Chase Bank – This bank makes student loans through American Education Services. Like Wells Fargo, they also require that you have made 24 to 48 on-time monthly payments to be considered for release.
- Citizens Bank – They permit the release of a cosigner after 36 consecutive on-time monthly payments. There are other conditions, but the website does not go into detail as to what they are. But you can be certain that they include satisfactory creditworthiness and income on the part of the primary borrower.
In the event that it turns out that your student loan provider does not permit to remove a cosigner, your only options will be to either refinance the loan, or to pay it off.