What Is a Cosigner Release?

Lainie Petersen

A cosigner release is a courtesy extended to a private student loan cosigner after the primary borrower demonstrates a pattern of credit worthiness. In many cases, those who take out private student loans in the United States must find a cosigner to guarantee the loan. Private student loan lenders often recognize the hesitancy of many people to cosign large loans for fear of being held responsible for its repayment. These lenders offer cosigner release programs that limit the liability of those who cosign loans on behalf of responsible primary borrowers. Typically, a cosigner release is available only in cases where the primary borrower has established credit worthiness after several years of on-time payments. Lenders are not legally required to offer these programs, so it is to the advantage of both borrowers and cosigners alike for the borrower to search for lenders who offer this option prior to taking out a loan.

Lenders are reluctant to give credit to borrowers who have a bad credit history.
Lenders are reluctant to give credit to borrowers who have a bad credit history.

While adults who enroll in or return to school often have established credit histories and regular employment, many young people who must apply for private student loans do not qualify on their own merits for loan approval. The students must typically ask parents, relatives, or friends to cosign their private student loan. The cosigner guarantees the loan in case the borrower defaults. If the borrower does not pay the loan as agreed, the lender can pursue payment from the cosigner just as if the cosigner was the primary borrower. This can have a devastating effect on the cosigner's finances and credit.

Many cosigners are eager to help a young student get the education that he or she needs to get off to a positive start in life, but because many private loan repayment periods can last a decade or more, cosigners are often justifiably concerned that they may be held responsible for repaying a loan many years after the borrower has graduated from school and established a career. These cosigners may wish to investigate the possibility of a cosigner release, which will allow them to be released from all obligations after the borrower a makes a certain number of payments. The qualification period for a cosigner release typically starts at the beginning of the repayment period and lasts anywhere from 24 to 36 months, though some lenders offer different terms. At the end of the qualification period, the lender reviews the borrower's repayment history as well as the borrower's current credit and financial situation. If the borrower meets the lender's criteria, a cosigner release may be possible.

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