Sara Routhier, Managing Editor and Outreach Director, has professional experience as an educator, SEO specialist, and content marketer. She has over five years of experience in the insurance industry. As a researcher, data nerd, writer, and editor she strives to curate educational, enlightening articles that provide you with the must-know facts and best-kept secrets within the overwhelming world o...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Nov 30, 2012

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Although it is possible for a co-signer to back out of a student loan, it takes work from both parties for this to occur.

Once an agreement is signed, it is very difficult to remove a co-signer. Until the loan is completely paid off and closed, the co-signer will remain on the lending agreement as added security unless further steps are taken. 

In order to terminate the dual agreement on a student loan and remove any potential liability from the co-signer, the person holding the account will need to do one of the three following options:

  • Fully assume the loan
  • Pay off and close the account
  • Refinance the loan

The first two options are rarely done. A co-signer gives lenders more security when loaning money out. They also allow borrowers to receive better interest rates and deals. When financing is linked to more than one person’s credit history, there are more repayment options for lending companies. If a person’s poor credit history requires a co-signer for a new loan, it is unlikely that a lender will allow the primary borrower to fully assume the loan, thereby removing a stable co-signer from the agreement.

The second option, to fully pay off and close the account, is usually only possible in the case of small loans or affluent co-signers. When students graduate, if a co-signer wants to finalize the loan as quickly as possible, they can offer money to finishing paying it off. Although this will be an unexpected cost for the benefactor, if their credit history is threatened and they have the funds, it is a quick way out of the agreement. 

The third and most viable option is to refinance the loan. For larger student loans, refinancing it under the person who is benefiting from it is the best option. Larger balances are more difficult to pay off in a short period of time. Refinancing allows for the borrower to reduce their monthly payments and extend the overall pay period. If a significant amount of the loan has been paid off, the loan should be able to be transferred completely to the borrower, without the need for a co-signer as backup.

If the borrower cannot refinance their loan due to credit issues, they should attempt to increase their credit score before resubmitting another refinance application. Thankfully, there are several ways to fix a credit score for free.

Co-signing a loan of any kind is no small decision. It shows that you trust your credit history and finances with another person. In an ideal world, a person should only agree to cosign for money that they can fully pay off themselves in the event the primary borrower defaults. While such a situation is certainly not what most co-signers want, it is a reality that many are facing today.

Student loan agreements are one of the strongest forms in the lending world because they cannot be absolved in bankruptcy or even death. Taking partnership in a student loan can impact a co-signer’s credit history for the rest of their life, all due to someone else’s negligence or financial irresponsibility.

Removing a co-signer from an agreement takes effort and willingness from both sides. If a borrower skips town or does not respond to inquiries from the person who notarized the funding, problems can quickly arise. It is fundamental to trust a borrower financially before co-signing a student loan.