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5 Top Reasons to Cosign Your Child’s Student Loan Refinance

5-reasons-cosign-childs-student-loan-refinance
Ben Luthi
5-reasons-cosign-childs-student-loan-refinance

Cosigning a student loan refinance with your child can be a great benefit for them, but it also creates some responsibilities for you. If you’re considering helping your child refinance his or her student loans, here are some of the things you’ll want to keep in mind.

What are the responsibilities of a student loan refinance cosigner?

Cosigning a student loan refinance works similarly to cosigning any other type of loan or credit card. Adding your name to the application allows the lender to review your credit history and income along with your child’s.

Depending on where your financial and credit situation stands, it could help your child obtain better financing than they could get on their own. However, your responsibility lasts longer than the initial application.

As a cosigner, you agree to be responsible for the loan’s monthly payments if the primary borrower (your child) can’t keep up. In other words, you are equally responsible for paying back the debt that you cosigned.

Additionally, cosigning a student loan refinance adds the loan account to your credit report. This means that when you go to borrow money in the future, prospective lenders will see the student loan balance and include the monthly payment when calculating your debt-to-income ratio, which is an important factor in determining the terms of your loan.

It also means that if your child misses a payment, it can ruin both your credit scores.

As a result, it’s essential that you consider your responsibilities and the potential issues that can arise from cosigning a student loan refinance. If you have doubts about your child’s ability to repay the debt, it may not be worth putting your financial situation at risk. Also, if you already have a high debt-to-income ratio, adding another payment could make it challenging for you to qualify for credit in the future.

5 reasons to cosign your child’s student loan refinance

Although there are some risks and responsibilities associated with cosigning a student loan refinance, it’s also important to note the ways it can help your child. Here are five reasons to consider a cosign arrangement:

  • It can help your child get approved: Each lender has different criteria for approval, but in general, you need a great credit score and high income to get approved for student loan refinancing. If your child recently graduated or has bad credit, adding your name to the application could give them the boost they need to get through the underwriting process.
  • It can help your child get better terms: Even if your child can get approved on their own, refinancing a student loan with a cosigner who has great credit and income could make it possible for them to net a lower interest rate. So if you’re confident that your child will make their monthly payments, adding your name to the loan could save them money.
  • Help them meet other goals: A lower interest rate is a top priority for many people who choose to refinance student loans, but it’s not the only reason to consider it. For example, your child may want to pay off their student loan debt faster with a shorter repayment term, or they may want to cut their monthly payment even more by opting for a longer term. Whatever your child’s goal is with refinancing, cosigning the loan application could help them accomplish it.
  • It can help you shift the burden of payments: In many cases, parents take out private student loans or Parent PLUS Loans to help their child pay for school. If this is your case, refinancing the debt in your child’s name after they graduate can be a great way to shift the responsibility of making payments to them. But if they can’t get approved for a refinance on their own, cosigning it may be a necessary step in the process.
  • Some lenders offer cosigner release: Refinancing student loans with a cosigner does create some responsibilities for you, but it doesn’t mean there’s no way out until the loan is paid in full. Many private lenders offer a cosigner release program, which allows the primary borrower to remove a cosigner after they meet certain payment and credit requirements.

If your child is asking you to cosign a student loan refinance, talk with them about their goals with their student loans, as well as their plan to make payments on time. Also, set expectations about what you’re willing to do and when to refinance again in their own name or remove you as a cosigner.

How to find the best student loan rate for your child’s refinance

Just cosigning a student loan refinance isn’t a guarantee of getting your child the best rate. The best way to do that is to shop around and compare rate offers from multiple lenders.

With the Purefy rate comparison tool, you can do this without needing to visit multiple lender websites. Simply have your child provide information about themselves and their student loans, then compare the rates they qualify for side by side.

Once you find the lenders that offer the best rates, you can add your name to the applications to see the terms they qualify for with you as a cosigner.

If your credit score isn’t quite where you want it to be, consider taking some time to work on improving it before you agree to cosign your child’s loan application. Check your credit score and credit report to get an idea of where you stand and which areas you can address, then take the time to make improvements. This process can take time, but if it helps your child get even better terms, it can be worth it.

How to apply for a student loan refinance with a cosigner

Not all student loan refinance lenders allow cosigners, so as you’re shopping around, check each lender’s website to find out if the feature is offered.

Next, have your child go through the application process and add your name and information along with theirs. When they submit the application, the lender will run a credit check on both of you to determine whether you qualify and what terms to offer you.

You’ll likely need to provide some documents to prove employment, income, identity and other aspects of the application, so make sure you have those on hand when you apply.

Once the lender approves the application, talk with your child about making payments and working toward being able to refinance on their own or remove you from the loan in the future.

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