How to Remove a Cosigner from a Parent PLUS Loan

A cosigner or endorser cannot be released from a Parent PLUS Loan. It doesn’t matter how many consecutive on-time payments have been made, whether the primary borrower has good credit, stable income, and a low debt-to-income ratio.

A cosigner or endorser can be released from a Parent PLUS Loan only if the loan balance is paid in full. That can be done in 3 ways:

• Paying in Full: Completely settling the loan balance. Given how expensive college has gotten, this is rarely an option for most parent borrowers.

• Refinancing: Taking out a new loan from a private student loan lender to cover the Parent PLUS Loan. Student loan refinance works well if the parent can pass the credit check, is still working, and can afford the monthly payments.

• Direct Consolidation Loan: This federal option allows for the consolidation of loans, simplifying them into one payment and potentially removing the cosigner. Out of these options, consolidating through a Direct Consolidation Loan is often the most straightforward approach to free a cosigner from a Parent PLUS Loan.

You may also like:

• Student Loan Cosigner Rights

• Can a Cosigner Sue The Primary Borrower on a Student Loan?

Parent PLUS Loans occupy a unique niche in federal student loan options, exclusively available to parents of dependent undergraduate students. The distinguishing feature of these loans is that they are only in the name of the parent, not the student. There are instances, however, where a relative or a family friend might step in as an endorser—akin to a cosigner—to help the parent meet the qualification criteria for the loan.

An endorser for a Parent PLUS Loan takes on a serious legal commitment, agreeing to shoulder the responsibility of repaying the loan should the primary borrower, the parent, fail to do so. This commitment forms a binding legal contract, ensuring the lender that the debt obligations will be fulfilled.

The role of an endorser is significant, and the implications are profound, often leading endorsers to explore paths to relinquish this duty.

Unlike private lenders, who may offer cosigner releases for private student loans, the federal government does not provide a similar release mechanism for Parent PLUS Loan endorsers.

Related: Will Cosigning a Student Loan Affect Me Buying a House?

The terms’ cosigner’ and ‘endorser’ in the context of Parent PLUS Loans carry distinct responsibilities and qualifications. Here’s a breakdown of what these roles entail:

Cosigner:

• Joint Repayment Pledge: Agrees to repay the loan if the primary borrower defaults.

• Credit and Income: Must have a good credit score and enough income, as they are just as responsible for the loan’s repayment.

• Credit Reporting: The loan typically appears on the cosigner’s credit report, affecting their credit score with any late payments.

Endorser for Parent PLUS Loans:

• Role Activation: Steps in when a parent borrower has an adverse credit history and cannot secure the loan independently.

• Credit Requirements: Need not show financial ability to repay the loan or have “good credit”; can qualify even with “bad credit.”

• Absence of Major Negative Credit Events: Must not have recent bankruptcies, foreclosures, wage garnishments, or accounts in collections to qualify.

• Credit Reporting: It is uncommon for the loan to appear on the credit report of the Parent PLUS Loan endorser, mitigating the risk of negative credit impact from late payments.

Understanding these roles and their implications is essential for anyone considering becoming an endorser or involving one in their loan application. These points highlight each role’s responsibilities and potential credit implications, showing the importance of informed financial decision-making.

There is no formal process for releasing an endorser from a Parent PLUS Loan. This stark reality often comes as a surprise and can be a source of concern for those who have endorsed a loan.

But the lack of a standard release option does not mean an endorser’s obligations are set in stone. There are strategies and actions that can indirectly lead to the release of an endorser:

1. Loan Repayment in Full: The most definitive end to any loan obligation is the complete repayment of the borrowed amount. Once the loan is paid off, the endorser’s responsibility disappears.

2. Refinancing with a Private Lender: The refinance option involves taking out a new loan with a private lender to pay off the Parent PLUS Loan. The new loan will be in the borrower’s name, effectively releasing the endorser from their commitment. But this move requires careful consideration, as it causes the loss of federal loan benefits like access to loan forgiveness programs, income-driven repayment plans, and options to pause student loan payments with deferments and forbearances.

3. Direct Consolidation Loan: By combining the Parent PLUS Loan into a Direct Consolidation Loan, the parent borrower can take sole responsibility for the debt. This action removes the endorser from the loan, freeing them from future liability. This consolidation can be undertaken only by the parent borrower and not the endorser.

Each path has its own set of implications, benefits, and challenges.

For example, refinancing with a private lender might yield a lower interest rate. Still, it could also strip away certain federal protections and repayment options.

Similarly, while Parent PLUS Loan Consolidation might seem attractive and straightforward, it requires the borrower’s initiative and creditworthiness.

Because a formal cosigner or endorser release is not an option for Parent PLUS Loans, endorsers need to understand the alternative routes available to fulfill their desire for release. One of the most accessible and flexible options from the federal government is loan consolidation.

The Direct Consolidation Loan program lets parent borrowers consolidate multiple federal education loans into one loan at no cost. Even if the parent has only one Parent PLUS Loan, they are still eligible to consolidate. This process can simplify repayment by combining loans into a single monthly payment.

One of the primary reasons a parent borrower might consolidate a Parent PLUS Loan is to gain access to the income-contingent repayment (ICR) plan, which can significantly reduce the monthly payment amount. The ICR plan calculates payments based on the borrower’s income and family size, which can benefit those who are retired or have a limited income.

Even in tougher financial situations, such as drawing on Social Security benefits or being in default, consolidation remains a good choice. The Department of Education allows for consolidation under these circumstances, making sure borrowers have a potential path to manage their loans more effectively.

While there’s no student loan cosigner release program for Parent PLUS Loans from the Education Department, endorsers can be released relatively easily. The process is straightforward: the parent borrower needs to combine their loans into a Direct Loan via StudentAid.gov. Following consolidation, the endorser is automatically relieved of their obligations.

Navigating these loan responsibilities can be challenging, but you need not face them alone.

Our team offers clear, actionable advice to help you understand your options and make decisions that are right for you. If you’re seeking tailored guidance to manage your student loan obligations, we’re here to help. Book a call with us, and together, we’ll secure a financial future that works for you.