Cosigner Release for International Students

Financial institutions often require a cosigner for student loans, since a cosigner can function as insurance for the lender if the primary borrower cannot repay the loan. However, sometimes having a cosigner proves unnecessary down the line, for instance, if the borrower earns enough income that they can pay off their loans quickly.

Releasing a cosigner from student loans can lessen the financial burden of the cosigner, and can help the borrower avoid defaulting on their loans if something happens to their cosigner. The following article provides a guide on the process of releasing a cosigner and explores the potential benefits of doing so for international students.

How Does Cosigner Release Work?

A cosigner release removes the cosigner from a student loan application if the primary borrower meets certain income and minimum payment requirements.

The requirements that the borrower must meet vary based on the lender. Generally, these conditions must reflect that the borrower can handle the debt on their own, rendering the cosigner unnecessary. The following requirements are the most common:

• The borrower must have made a certain minimum number of on-time, full monthly payments on their loans. The minimum number of payments varies: some lenders only require that 12 full monthly payments must be made, while others require as much as 48.
• The borrower must be employed and must meet a certain minimum income requirement set by the lender. Typically, a lender will ask for proof of income, for instance, a pay stub or a W-2.
• The borrower must have already graduated from college/university and must provide proof of graduation.
• The borrower must meet certain minimum credit history and credit score requirements.

When a cosigner is released their debt and financial obligations are drastically reduced, and thus their credit score and debt-to-income ratio improve. This can create valuable financial flexibility for the cosigner.

How to Release a Cosigner from a Student Loan

It’s important that borrowers know how to release a cosigner from a student loan, in case something happens to their cosigner and they risk defaulting on their loans. See the following steps:

1. Contact Your Lender

Since each lender has different criteria for releasing a cosigner from a student loan, first you must contact your lender and ask about their conditions.  The Consumer Financial Protection Bureau has drafted template letters here that borrowers can use to inquire about cosigner release. The CFPB also has a letter for cosigners themselves to request release from lenders.

2. Fill out the Required Paperwork

Borrowers must provide documentation proving that they can meet the minimum requirements set by the lender for cosigner release. While it varies based on the lender, generally this will include documents like pay stubs, credit reports, and a copy of your diploma. One of the biggest lenders for student loans, Sallie Mae, has provided a full list of the documents that they require to release a cosigner here.

3. Submit Your Application for Student Loan Cosigner Release

Once you know the requirements for cosigner release and have collected documentation proving that you can meet these requirements, you can submit your application. It’s important that you follow up and keep copies of all communication and documentation that you exchange, in case you run into any issues with processing.

Student Loan Refinancing as a Way to Release a Cosigner

Another way that primary borrowers can release the cosigner on their student loans is by refinancing. Student loan refinancing is a process that lets borrowers consolidate multiple loans into a single loan with a single lender. The lender pays off your outstanding debts and provides you with a single monthly payment and simplified terms and conditions. Often, borrowers get lower interest rates upon refinancing as well.

Since refinancing is like taking out a new loan with new terms and conditions, you must meet certain requirements to qualify. These requirements typically involve proving employment, income, and a good credit score. If you can meet the requirements for refinancing on your own without a cosigner then the cosigner from your original loans will be released upon refinancing, and you will not need a new cosigner.

How Does Cosigner Release Benefit International Students

The cosigner of a loan serves as the guarantor for the financial institution, fulfilling the obligation if the primary borrower is unable. However, if the cosigner is no longer able to fulfill the debt, the consequences for the primary borrower can be severe.

Since the loan no longer has a guarantor, the primary borrower takes on full responsibility for the debt and owes the full amount. This can result in an “auto-default” upon the death of a cosigner, typically a parent or grandparent.

While the risk of defaulting is significant for anyone, international students must be particularly careful about staying on top of loan payments. Noncitizens are largely excluded from the credit system and must meet the most stringent conditions to qualify for the few loan opportunities that they do have available to them. This makes building credit a long, slow process for most international students.

International students, then, should always be conscious of the status of their cosigner. If anything happens, remember to quickly release your cosigner to avoid defaulting on your loans.

Conclusion

Most borrowers are aware of the risk a cosigner faces by putting their credit at stake for a student loan. However, many are unaware of the danger the primary borrower faces if something happens to the cosigner.

The damage a default inflicts on your credit score and financial profile is long-lasting and difficult to reverse. That’s why it’s important that borrowers quickly remove a cosigner from a student loan in the event of a tragedy, especially if the borrower is an international student.

Frank Gogol

I’m a firm believer that information is the key to financial freedom. On the Stilt Blog, I write about the complex topics — like finance, immigration, and technology — to help immigrants make the most of their lives in the U.S. Our content and brand have been featured in Forbes, TechCrunch, VentureBeat, and more.

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