How To Refinance Student Loans With a Cosigner: Benefits and Tips

Refinancing your student loans can help you lower your interest rate and monthly payment, but it generally requires good credit and a stable income. If you can't qualify for a refinance loan on your own, you may qualify with a loved one as your cosigner. If they have good credit, you could have an easier time qualifying for a loan and may even land a lower interest rate.

Getting a refinance loan with a cosigner has some benefits, but it's important to understand the eligibility requirements up front and what the arrangement means for both of you. Here's what you need to know.

What does it mean to refinance with a cosigner?

Refinancing with a cosigner means someone — usually a family member or close friend — agrees to share responsibility for your loan. If you can't repay it, the cosigner agrees to step in and cover the payments. Their credit score and income are also factored into the application, which can help you qualify for a lower interest rate or better loan terms.

“Having a cosigner on a loan is generally required if the primary borrower doesn't have a sufficient credit profile, such as credit score or debt-to-income ratio, that would be required to obtain the loan on their own,” says Jack Wang, a wealth advisor with Innovative Advisory Group.

While a cosigner isn't usually the one making the loan payments, they still have just as much responsibility for it as the primary borrower. The loan will appear on the cosigner's credit report, and if neither the primary borrower nor the cosigner makes the monthly payments, both borrowers will see their credit scores take a hit.

Current student loan refinance rates

Why refinance student loans with a cosigner?

One of the biggest benefits of refinancing your student loans with a cosigner is you may be eligible for loans you otherwise wouldn't be. Most lenders have credit score and income requirements in place. If you can't meet those on your own, a cosigner could help you qualify for a loan.

Having a cosigner on your loan could also give you access to a lower interest rate, lower monthly payments, and better repayment terms. If your cosigner has a better credit score or higher income than you, it could open up better overall loan opportunities.

For example, let's say you have a poor credit score, but your spouse has an excellent credit score. If adding your spouse as a cosigner to your loan helps lower your rate from 8% to 6% on a $20,000 10-year loan, you could lower your monthly payment by about $20 and save nearly $2,500 over your entire loan term.

Eligibility requirements for cosigner refinancing

Each lender sets its own eligibility requirements for student loan refinancing. If you, as the primary borrower, aren't able to meet those requirements on your own, you could be approved if you apply with a cosigner who meets them instead.

“In the past, your credit score was considered the most important metric of financial stability,” says Jenny Twomey, community communications lead at Earnest, a student loan lending platform. “But these days, lenders consider a broader range of factors to evaluate a potential borrower's creditworthiness.”

For example, Twomey notes that lenders now also value a borrower's income stability, a low debt-to-income ratio, and a solid payment history to qualify for a loan.

Steps to refinance with a cosigner

If you're planning to refinance your student loans with a cosigner, the first step is to decide who you'll ask to cosign. In most cases, you'll ask someone close to you, such as a family member or close friend.

It's important to choose someone with good credit and a stable income since those are the factors lenders will look at. On the other hand, you'll want to choose someone who trusts you to manage your loan responsibly. Asking someone to cosign a loan is a big ask since missed payments on your part could negatively affect their credit and future borrowing prospects.

Once someone has agreed to be your cosigner, here are the steps to refinance your loan:

1. Shop around for lenders: Start by narrowing down your list of potential lenders. If you know you need a cosigner on your loan, you'll narrow your list down to those lenders that allow cosigners.
2. Compare rate quotes: When refinancing, you'll generally want to find the best interest rate and loan terms to get the most affordable payments. You can compare your options by getting several rate quotes in a process called prequalification. You can often do this without an impact on your credit.
3. Gather your documents: Both you and your cosigner will need to provide your lender with certain documents, including your government-issued ID, proof of income, and your most recent loan statement.
4. Apply for your loan: Once you've chosen a lender and gathered your documents, you can apply for your loan. This step usually takes 10 minutes or less, but you'll likely need your cosigner there to help complete the application (or provide information ahead of time).
5. Sign your loan documents: Once your loan is accepted, which can happen anywhere from immediately to about a week later, you and your cosigner will both sign the loan agreement to finalize the loan. You're now officially on the loan together.

How to manage a cosigned loan after refinancing

As the primary borrower on a cosigned loan, it's your responsibility to make sure you make your monthly loan payments, unless you and your cosigner have explicitly agreed otherwise.

In most cases, the cosigner simply signs onto the loan to help the primary borrower get approved — they don't actually expect to make the payments. However, in the eyes of the lender (and the credit bureaus), the loan is just as much their responsibility. Failing to pay it could have major negative consequences for them.

“It's essential that borrowers and cosigners remain in contact, especially if the borrower ever faces financial challenges,” says Robert Farrington, founder of The College Investor. “Since the cosigner is legally responsible for the loan, if the borrower needs assistance making payments, they need to discuss the options together.”

There's no doubt this will be a challenging and potentially awkward conversation, but it's better than surprising a loved one with a missed payment on their credit report that dings their credit score.

One way to stay on top of your payments is to set up automatic payments from your bank account. This helps ensure you never miss a payment, and as an added bonus, many lenders offer a small rate discount when you opt in.

Finally, consider choosing a lender that offers cosigner release. A cosigner release allows a cosigner to be removed from the loan after a certain period, assuming they've made all of their payments on time. Think of it like a test run, where your lender just wants to make sure you'll actually stick to your payments.

“This can be a great feature to look for when deciding to refinance a loan with a cosigner,” says Farrington.