Refinancing your student loans can help you secure a better rate, lower monthly payment or both. But if your credit is holding you back from getting approved for refinancing, or you want a lower rate than you’re approved for, adding a co-signer could help. Here’s what to consider if you want to refinance with a co-signer.
How Student Loan Refinancing Works
Student loan refinancing combines all of your existing student debt into one loan with a new lender. Because you can’t refinance debt into a federal loan, you can only refinance with a private student loan lender.
Applying for student loan refinancing is a similar process to applying for any other kind of loan. Each lender has its own income and credit score requirements that you must meet to qualify. Some lenders may also have limits on the amount you can refinance or the type of degree that your loans were used to pay for.
Good to know: If you have federal student loans and choose to refinance, your loans will become private student loans. This means that you’ll lose out on any federal benefits, including student loan forgiveness and income-driven repayment plans.
Refinancing Your Student Loans With a Co-signer
If you don’t meet the lender’s income or credit score requirements for student loan refinancing, adding a creditworthy co-signer to the loan can help you qualify. A co-signer is another adult, often a relative or close friend, who agrees to take responsibility for the loan if you can’t make payments.
Sometimes adding a co-signer is a good idea—even if you can get approved on your own. Having a co-signer can help you qualify for a lower interest rate because it makes you a less risky candidate.
Here’s how you can refinance with a co-signer.
1. Compare Lenders That Allow Co-signers
The first step is to find lenders that allow co-signers for refinancing—because there are some lenders that don’t allow them. You can begin your search with our best student loan refinancing lenders list. These are some of the best lenders who offer a wide variety of repayment terms.
Tip: Ideally, you should compare a few different lenders to ensure you’re getting the best terms possible. Consider the interest rate, monthly payment, loan terms and any fees the lender charges before deciding on the right loan for your situation.
2. Find a Co-signer
Next, determine who your co-signer will be. The co-signer should have a good credit score and solid income. When you ask them, make sure they understand the implications of co-signing, as well.
The co-signer should be aware that the loan will stay on their credit report until you pay it off or refinance again without a co-signer. This can make it harder for them to qualify for another loan, since the lender will include your student loan as part of their total debt. Any missed payments or negative marks on your student loan account will also impact your co-signer’s credit.
Tip: Lenders will sometimes let you remove a co-signer from a loan after a certain period of time. This is called co-signer release. Not all lenders offer this, so it’s a good idea to ask ahead of time and know your options. If you can release the co-signer from the loan, it will no longer appear on their credit report and the debt will be your sole responsibility.
3. Prepare Your Documentation
Once you’re ready to apply with the co-signer, it’s time to gather the necessary documents. The lender will usually ask for a copy of your driver’s license and proof of income, like a pay stub or previous tax return. You’ll also have to provide your Social Security number, contact information and other relevant details.
Tip: The documentation needed will likely be similar for your co-signer. Give them a heads up on the required documents so they’ll be ready, too.
4. Submit an Application
After you pick the lender and terms that are right for you, you’re ready to fill out and complete your loan application. If you’re approved and everything looks good on your end, you’ll sign the offer to make it official.
Tip: Some lenders allow you to prequalify before submitting a formal application, which causes a hard credit inquiry. Prequalifying with multiple lenders before you decide on one can give you a better understanding of the actual rates and terms you’ll get—plus, this will only perform a soft credit check.
Alternatives to Refinancing Student Loans With a Co-signer
Although using a co-signer can be a smart move, not everyone has someone they feel comfortable putting on their loan. If that’s the case, you do have other options for refinancing.
Wait Until You Can Qualify on Your Own
If you apply for student loan refinancing and you’re denied, ask the lender why they rejected you. Lenders are required to provide a brief explanation. The most common reasons are a low credit score or income. Most lenders require a minimum credit score in the mid- to high-600s.. If your score is below that threshold, you should work on increasing it by:
- Making all your payments on time: Your payment history makes up 35% of your FICO credit score. If possible, sign up for automatic payments to reduce the chances of missing a payment on any loans or credit cards.
- Checking your credit utilization ratio: Your credit utilization represents how much credit you’re currently using compared to your total credit limit. The ideal credit utilization percentage is 10% or less—but you should at least stay under 30%. A high credit utilization makes lenders think that you’re relying too heavily on credit.
- Not opening new accounts: Opening new credit accounts or closing any old credit accounts can affect your credit. Typically, you can monitor your credit through your bank or credit card provider. Once you improve your credit score, you can check if you qualify for refinancing.
Look for Lenders With Less Strict Requirements
If you don’t have a co-signer, you can still look for lenders that might allow you to qualify with a lower credit score, such as SoFi and Earnest.
Also, if you have a lower income and are struggling to get approved, look for lenders that have less stringent income requirements. For example, SoFi doesn’t have a minimum income requirement and MEFA only requires proof of income.
