If you want to refinance your student loans but are worried you can’t qualify with your current credit score or income, there is a potential workaround: Adding a cosigner to your loan application.
By refinancing student loans with a cosigner, you are more likely to qualify for a loan and get a lower interest rate than if you applied on your own.
Below, find out how cosigners work and the benefits of refinancing your student loans with a cosigned application.
What is a cosigner for student loans?
Even if you’re an independent adult living on your own, a cosigner can still be useful when you refinance your student loans.
A cosigner is someone — typically a parent, relative, or close friend — who has a steady source of income and good to excellent credit. According to Experian, that means your cosigner should have a credit score between 700 and 850.
The cosigner applies for the loan with you and acts as a guarantor. If you fall behind or stop making payments, the lender will require the cosigner to make the payments in your place. Serving as a cosigner is a big responsibility, so it’s important to have an open conversation with your relative or friend about the loan, minimum payments, and ability to repay the debt.
Acting as a cosigner doesn’t have to be a long-term commitment. Some lenders offer cosigner releases. After you make payments on time for a few years, you can apply to have the cosigner removed from the loan. If you meet the lender’s underwriting criteria on your own, the cosigner will no longer be responsible for the debt.
5 times refinancing student loans with a cosigner makes sense
Adding a cosigner to your student loan refinancing application can be wise, especially in the following scenarios. Here’s when you should consider a cosigned student loan refinance.
1. You have a low credit score
As a recent college graduate, you may not have a lengthy credit history, and your credit score may not be stellar. If you have poor credit, you’re unlikely to qualify for student loan refinancing. Most refinancing lenders require applicants to have good credit or better. For example, Earnest’s minimum credit score is 650.
However, some lenders will consider you for refinancing if you add a cosigner to your application with good to excellent credit.
2. You don’t meet a lender’s income requirements
Similarly, most student loan refinancing lenders have strict income requirements. For example, PenFed requires borrowers refinancing up to $150,000 in student loans to earn at least $42,000 per year. If you make less than that, you’ll need a cosigner who meets its income requirements to qualify for a loan.
3. Your debt-to-income ratio is too high
In some cases, you may meet the lender’s income and credit score requirements, but still get denied for a loan. One common reason is that your debt-to-income ratio (DTI) is too high. Your DTI is the amount of debt you have relative to your income. It gives lenders an idea of how well you’ll be able to afford your payments after you refinance. If you have a substantial amount of debt, you’ll struggle to get approved for a loan, even if you make a good salary.
Adding a cosigner who earns a stable income can improve your application and help lenders look past your high DTI.
4. Adding a cosigner helps you secure a lower interest rate
Refinancing student loans with a cosigner isn’t just a good idea if you have a low income or poor credit. Even if you can qualify for refinancing on your own, it may be a good idea to add a cosigner to your application anyway.
That’s because adding a cosigner can help you qualify for lower interest rates than you could get by yourself, helping you save money over time.
By adding a cosigner, you could reduce your interest rate by a full percentage point or more, which could allow you to save thousands over the length of your loan repayment term.
For example, let’s say you refinanced $30,000 in student loans and qualified for a 10-year fixed-rate loan at 4% interest. By the end of your repayment term, you’d pay $6,448 in interest charges.
But let’s say you added a cosigner with excellent credit to your refinancing application. With a cosigner, you qualify for a 10-year fixed-rate loan at 3% interest. Over the length of your loan, you’d pay just $4,762 in interest charges. Adding a cosigner to your application would allow you to save $1,686.
| Refinanced Without a Cosigner | Refinanced With a Cosigner | |
| Loan Balance | $30,000 | $30,000 |
| Loan Term | 10 Years | 10 Years |
| Interest Rate | 4% | 3% |
| Monthly Payment | $304 | $290 |
| Total Interest | $6,448 | $4,762 |
| Total Repaid | $36,448 | $34,762 |
5. You want to consolidate your loans with your spouse’s debt
If you’re married and you each have student loan debt, adding your spouse as a cosigner to your loan application can be a good way to consolidate your debt. The lender will consider your spouse’s income and credit score when determining your interest rate, and your spouse will share responsibility for the loan’s repayment.
Since not all lenders offer spouse loan refinancing — PenFed Credit Union is the only lender that currently does — applying for a loan with your spouse as a cosigner is a useful alternative.
Comparing and getting the best rates for student loan refinancing
Refinancing your student loans can be an excellent way to save money and pay off your debt faster. If you can’t qualify on your own or want to maximize your chances of getting the lowest interest rate possible, refinancing student loans with a cosigner may be a smart strategy.
When you’re ready to refinance, use Purefy’s Compare Rates tool to get quotes from multiple lenders at once. Once you find a loan that works for you, you can move forward with the loan application online.
