Typically, if you co-sign a loan you are up the proverbial creek until the borrower pays it off completely. Private student loans are a different story. While the government protects lenders of Stafford and other federal student loans, lenders for private student loans often want a responsible person to guarantee repayment by co-signing the loan. Some lenders allow the co-signer to receive a co-signer release after the primary borrower has established a credit history.
Why Ask for Release?
The student loan appears on the co-signer's credit report. Lenders use information from an applicant's credit report when deciding whether to accept or deny applications. Because a co-signer obligates himself to pay if the student defaults, a future lender can decide the risk of nonpayment is too great and deny your credit request. In addition, late payments appear on your credit report and lower your score, making it seem to new lenders that you are a bad credit risk.
Co-signer releases only occur when allowed by the lender. Not all lenders allow a co-signer to remove himself and those that do often have strict requirements before allowing the release. The primary concern of the lender is repayment of the loan. Keeping the co-signer provides the lender with another choice should the student not meet his obligations. Read the loan contract or call the lender to determine whether it allows you to remove yourself from the loan.
Requirements vary by lender, but typically, the borrower must make a specific number of payments on time and have a good credit report. Citizens Bank of Pennsylvania, for example, requires 36 on-time payments before considering a release. If the borrower's credit report shows negative information such as late payments to other lenders, the lender typically will not release the co-signer from the loan. The borrower must send a request for loan review to start the release process.
Encourage the borrower to make timely payments and pay attention the amount of debt he accumulates. These two elements comprise 65 percent of a person's credit score, according to MyFICO. The sooner the borrower can establish credit, the sooner he can ask for a co-signer release for you. Ask the lender to notify you when the borrower misses a payment date. Notice that the borrower is neglecting his obligations gives you time to talk to him or make the payment yourself.
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