If you have high-interest student loan debt, refinancing your loans can be an excellent way to save money and pay off your debt faster. However, qualifying for a refinancing loan can be difficult when you’re fresh out of college.
Luckily, there is a workaround: you can qualify for a loan if you add a creditworthy cosigner to your application. Here’s how cosigning a student loan refinance application works, and how it can benefit you as the primary borrower.
The problem with refinancing as a new graduate
As a new college graduate, you likely have a significant amount of student loan debt, which makes student loan refinancing particularly useful. Unfortunately, your income and credit score may not be high enough to meet lenders’ refinancing requirements on your own.
To qualify for a loan, you typically need to have a full-time job, meet minimum income limits, and have good to excellent credit.
When you’re just out of school, it can be difficult to meet that criteria. According to the Consumer Financial Protection Bureau, there are approximately 45 million people in the United States who may be denied loans because their credit histories are too thin to score. This problem is particularly common among young adults, since they may not have had credit in their names before.
If you have no credit history or poor credit, it can be challenging to find a lender who is willing to work with you. Even if you do get approved for a loan, you may get stuck with a high interest rate, making refinancing your loans ineffective.
What is a student loan refinance cosigner?
If you are one of the millions of people with poor credit or no credit history and want to refinance your loans, you may be able to qualify for a loan if you add a cosigner to your application.
A cosigner is typically a parent, relative, or a close friend with good to excellent credit and steady income who applies for a loan with you. By cosigning a student loan refinance application, the cosigner shares responsibility for the loan. If you can’t afford your payments and fall behind, the cosigner is responsible for paying them instead. If you become delinquent or default on the loan, it can damage their credit report.
Benefits of refinancing a student loan with a cosigner
There are two main benefits to adding a cosigner to your loan application.
1. You’re more likely to get approved for a loan
Adding a cosigner decreases the lender’s risk. Because someone with reliable income and good credit is guaranteeing the loan, it’s not as risky to give you a loan as if you had applied on your own. If you can’t get approved for student loan refinancing by yourself, adding a cosigner increases your odds of getting approved for a loan.
If a lender approves you for student loan refinancing, you can enjoy a lower interest rate, a reduced monthly payment, or even pay off your debt ahead of schedule.
2. You’re more likely to get a good interest rate
If you add a cosigner to your loan application, you’re a much more attractive candidate than if you applied on your own. Lenders will consider your cosigner’s income and credit score when evaluating your application and assigning you an interest rate.
If your cosigner has excellent credit, you may get a much lower interest rate than you’d get by yourself. With a lower rate, less interest will accrue on your own, helping you save thousands over the life of your loan.
For example, Jennifer has $30,000 in student loans at 6% interest with a 10-year repayment term. With an income of $35,000 and a credit score of 660, she qualified for student loan refinancing on her own, but she got a higher interest rate than she hoped. She qualified for a 10-year loan at 5% interest.
She decided to apply for a loan with another lender, but this time her father cosigned the loan application. With his help, she qualified for a 10-year loan with an interest rate of just 3.5%. By refinancing her debt with a cosigner, she was able to save over $3,500 more than she could refinancing on her own.
| Original Loan | Refinanced Without a Cosigner | Refinanced With a Cosigner | |
| Loan Balance | $30,000 | $30,000 | $30,000 |
| Loan Term | 10 Years | 10 Years | 10 Years |
| Interest Rate | 6% | 5% | 3.5% |
| Minimum Monthly Payment | $333 | $318 | $297 |
| Total Interest | $9,967 | $8,184 | $5,599 |
| Total Repaid | $39,967 | $38,184 | $35,599 |
| Total Savings Compared to Original Loan: $1,784 | Total Savings Compared to Original Loan: $4,368 |
Compare rates before cosigning a student loan refinance application
If you want to refinance your student loans but have less-than-stellar credit, adding a cosigner to your loan application is a smart decision. It will boost your chances of getting a loan and qualifying for a low interest rate.
If you decide to refinance your loans and have a friend or relative who can act as a cosigner, make sure you compare rate quotes from multiple lenders so you can secure the best interest rate. While you could compare rates on your own, the process can be time consuming and frustrating. Instead, use Purefy’s Compare Rates tool to get quotes from top lenders by filling out one simple form.
