Cosigner Release: What It Is and What CommonBond Offers

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April 27, 2017

When taking out a student loan with a creditworthy cosigner, an undergraduate or graduate student may feel like they're forever being tied at the hip with mom or dad.

Cosigner release – a feature of CommonBond student loans may alleviate that feeling. Cosigner release may relieve guarantors of their financial liability over time while helping the primary borrower achieve financial independence.

Removing a cosigner from a loan is a big decision with benefits and potential pitfalls worth reviewing closely. Every borrower should plan their path toward cosigner release if it makes sense for their financial situation. Here's how.

First things first, what, exactly, is a cosigner?

A cosigner is often a parent or a legal guardian who commits to making the payments on a student's loan in the event that the student cannot, for whatever reason. Typically, as is the case with CommonBond, having a cosigner is required for an undergraduate loan, as the cosigner's credit is being reviewed.

Cosigning a student loan creates a shared responsibility if a student makes late payments, two credit scores take a hit: both theirs and the cosigner's. If a student becomes unable to make loan payments, the cosigner becomes legally responsible.

This explains why cosigner release is a popular topic of conversation for both parties.

In some cases, it behooves both the borrower and their cosigner to put the loan back into the hands of the student, who is building their own credit in the process. This is not true for all cases, so we recommend that you read on to understand the ins and outs of cosigner release policies before you make the best decision for yourself.

What is a cosigner release policy?

A cosigner release policy is a set of guidelines that your lender may lay out to help you understand how you can release your cosigner from any obligation related to your student loans.

Many lenders have a set of requirements that must be met before cosigner release can be applied for and granted. At CommonBond, for example, you need to have made two straight years of on-time, complete (principal and interest) monthly payments.

If you're a borrower who's made progress on paying down the principal and interest of your student loan, sending your cosigner off into the sunset will feel like an important milestone toward being independent.

What are the benefits of cosigner release?

Removing a cosigner from a loan shows the borrower's independence, financial growth, and ability to handle their own debt.

Then there are the benefits for the cosigner. If your parent has been, in effect, sponsoring you and your loan, releasing mom and dad may allow them to lower their amount of outstanding debt.

What are the potential pitfalls of cosigner release?

The obvious one first – you may decide to release your cosigner from your loan agreement and something goes wrong. Ensure that you have a fallback option in place, such as maintaining bank account savings in the event of job loss – before deciding to go out on your own.

It's also worth noting that every borrower-cosigner relationship is different. Perhaps you rely on yours for more than being a financial backup plan. Maybe routine personal financial advice is what you'd miss most if you release your cosigner from their obligation on your student loan.

Here's a quick summary of the pros and cons of releasing a cosigner:

  • Pro for the student – Helps you achieve financial independence.
  • Con for the student – You may lose financial support in the event of loss of income/illness.
  • Pro for the cosigner – Reduces outstanding debt burden; removes financial, legal risk.
  • Con for the cosigner – You may leave your ex-dependent vulnerable.

Whatever the case may be, ensure that removing your cosigner from your loan doesn't remove them from your life in the ways that you're used to counting upon.

If either you or your cosigner prefers to move forward with release, here are a few questions to ask yourself as the borrower being held responsible for future payments:

  • Do you have enough income and savings to continue making payments on your own? 
  • Are you prepared for unforeseen financial circumstances?
  • Have you discussed your situation with your cosigner and lender?
  • Do you meet your lender's requirements for cosigner release?

How to qualify for cosigner release at CommonBond

So you've decided that cosigner release is for you. It's a big step, and it will require some additional effort, depending upon your lender. Other lenders list as many as 10 requirements toward qualifying for cosigner release on its website. CommonBond, by comparison, has four:

CommonBond's four criteria for cosigner release. The borrower must have:

  1. Graduated from the degree program that their student loan was associated with.
  2. Passed the age of 21.
  3. Made 24 consecutive, on-time monthly payments of the loan's principal and interest.
  4. Met CommonBond's current underwriting criteria at the time of release, which includes a new review of the applicant's credit.

Remember, too, that if you entered forbearance at any point, doing so reset the clock on your history of making on-time payments. As a result, you would need to have made 24 straight monthly payments since exiting forbearance to be eligible for cosigner release.

If you have a question about cosigner release or other aspects of the student loan process, contact our care team via email at care@commonbond.co or via phone at (800) 975-7812. We're always happy to help you evaluate all of your options.

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