Can You Transfer Student Loans from a Co-signer to a Borrower?

One reason financial experts, such as Mary Rowland of MSN Money Central, tell consumers never to co-sign a loan is that it can be extremely difficult to remove themselves from an agreement. In general, the only way to get out of a co-signed loan is to have the primary borrower get a new contract. However, it is usually far easier to remove a co-signer from a student loan than a normal account.

Identification

It is possible to remove a co-signer from a student loan agreement. In practice, the only guaranteed way to do this is if the primary borrower refinances the loan -- applying for a new loan and using those proceeds to pay an old debt. This assumes that the primary borrower has built enough credit history to qualify for a loan and has verifiable income to cover the monthly payments.

Benefits

Co-signers should get a borrower to refinance the student loan as soon as he can qualify for one on his own. Lenders count co-signed student loans in a persons monthly debt payments to monthly income calculation, which can be more important than a credit score. Also, the co-signer risks his credit rating as long as he puts his name on the account.

Requesting Removal

Lenders of student loans often agree to remove a co-signer if asked, according to Loan.com. The decision to remove a co-signer is up to the lender, so you should not count on this. Also, the lender will review the credit history on the primary borrower to judge if removing the co-signer might affect the chance of default on the loan. Some private student loan lenders include removal of a co-signer as a standard part of the agreement with certain restrictions, such as the borrower must have graduated.

Tip

You should never co-sign a loan just because you are asked, even if it is someone close, maybe a son or daughter. Judge the borrower's ability and willingness to repay debts in the past. If you do co-sign a loan, have funds available to repay the loan in case you have to take over payments. Lenders usually go after a co-signer when the primary account holder defaults. Unlike most loans, the bankruptcy courts almost never discharge student loans, because this would create a moral hazard by allowing people to get a free college education through the legal system.