Heads Up: The Fed continues to raise rates — up 3% this year — making credit card debt even costlier.
Pay it off today with a low fixed-rate personal loan. View your rate —>

How to Leverage Home Equity to Pay Off Student Debt

April 09, 2020 · 7 minute read

We’re here to help! First and foremost, SoFi Learn strives to be a beneficial resource to you as you navigate your financial journey. Read more We develop content that covers a variety of financial topics. Sometimes, that content may include information about products, features, or services that SoFi does not provide. We aim to break down complicated concepts, loop you in on the latest trends, and keep you up-to-date on the stuff you can use to help get your money right. Read less

How to Leverage Home Equity to Pay Off Student Debt

Student loan debt can be difficult to manage. Trying to make ends meet when you are saddled with a monthly payment from your education can be a challenge. The burden can become overwhelming once you add a mortgage, a car, and other financial obligations. Stare at your owed balances long enough and you may start wondering just how illegal robbing a bank really is.

Fortunately, there’s another option available—that won’t end with you in handcuffs.
Fannie Mae offers a way for you to use the excess value of your home to pay off student loan debt directly. Some families may benefit from consolidating student loan debt into their mortgage with a new lower fixed rate applied and consolidated into one loan with one monthly payment.

It’s good to note that although the rate and payment may be lower, the term of the debt may be lengthened which would result in higher interest payments over an extended period of repayment.

Mortgage interest rates can run lower than student loan interest rates. Some homeowners may be able to use that to their advantage. Paying off multiple student loans with one loan means making only one payment per month, which not only simplifies life, but could also save borrowers money.

How much you can potentially save depends on things like the difference in interest rates —depending on your loan terms, it can be said, the bigger the gap, the better the savings.

For example, if you’re paying 7.08% interest on a Direct PLUS student loan for 25-years, but can lower the rate on your 30-year mortgage at say a 4.00% interest rate, you’ll not only pay off your student loans with less interest over the life of the loan, but can also refinance your mortgage to a lower rate, possibly saving you significant mortgage interest in the long run.

Working with SoFi, you can consolidate your student loans with your existing mortgage, refinance the total amount at a lower rate, and simultaneously pay off those student loans.

Under the student loan cash-out refinance program, student loans would be paid off directly through escrow after the loan funds which allows this loan program to avoid any additional pricing bumps for cashout to the borrower. Loans must be paid in full, no partial payments are allowed.

Recommended: First Time Home Buyer’s Guide

The Elements of Equity

Some cash-out refinance loans such as a student loan cash-out refinance is priced to be used for a specific purpose, consolidating your student loan debt and mortgage into better loan terms.

You can also take cash out of your home for most any reason with a vanilla cash-out refinance type loan or if you already have a low rate on your mortgage, you can opt for a 2nd mortgage such as a home equity line of credit (HELOC.)

When your home’s market value is higher than what you owe on your mortgage(s), you have equity in your home. The equity you earn in your home can be utilized as an asset. That means if eligible under the loan program you choose, you can draw upon the available equity, for a variety of reasons (e.g. to pay off your student loans).

You can gain equity in two ways. The first is by making payments on the mortgage; as you pay back what you owe the principal amount owing on your loan is reduced, and if your home’s market value doesn’t decline, your equity increases. Say that you purchased a home for $350,000 and you took out a $250,000 mortgage 10 years ago, and have since paid back $50,000 of what you owe.

If your home value remains the same as when you purchased it, you may have $150,000 in available equity for an in-ground pool for the kids, a new car, or, best of all, to consolidate and refinance your student loans. The amount of equity that can be utilized will depend upon many factors, such as the lender, loan program, qualifying, etc.

Sound good? It may be even better. The second way to earn equity in your home is through price appreciation, so as your home gains market value, you earn equity.

If you’re a ladder-climbing professional, who’s great at financial planning, it’s possible that you bought that dream home in a growing market, and it’s now worth $400,000 or more. As of 2018, untapped home equity reached an all-time high in the United States, reaching about $14.4 trillion . If your home’s equity is part of that sum, it could be used as a tool to help you further your financial priorities.

Deciding to Pay Off Student Loans with Home Equity

Using the equity you’ve earned in your home to pay off your student loans may sound like an easy fix. But before you commit to refinancing, you may want to weigh the decision carefully. While it may make sense for some, a student loan cash out refinance won’t work for everyone. Here are a few pros and cons to consider as you make your decision.

Turn your home equity into cash with a HELOC from SoFi.

Access up to 95% or $500k of your home’s equity to finance almost anything.

Benefits of Paying Off Student Loans with Home Equity

Like most financial decisions, paying off your student loans with the equity you’ve earned on your home is a multifaceted decision. Here are some of the ways you could find it beneficial.

Securing a lower interest rate is potentially the most appealing reason to use the equity in your home to pay off student loans. As part of your decision-making process consider reviewing mortgage options at a few different lenders. While reviewing rate quotes from each lender do the math to determine if paying off student loans with home equity will truly reduce the amount of money you spend in interest.

If there are any fees or prepayment penalties, try to factor those in. Doing this leg work can help you determine if going through the process is worth it in the long run.

As you are reviewing options, consider the term length of the mortgages. The standard repayment plan for student loans has a 10 year term unless you consolidated them already, in which case you could have a term of up to 25 years. With a mortgage, term lengths can be as long as 30 years .

While repaying your debt over a longer time period could lower monthly payments, it may also mean you pay more in interest over the life of the loan, which could factor into your decision-making process.

Another benefit may be reducing the number of monthly payments you need to keep track of. Instead of paying your mortgage and each of your student loans, those bills have all been consolidated into a single payment. Streamlining your payments could help you stay on top of your payments and make your finances a little bit easier to manage.

Recommended: Home Affordability Calculator

Downsides of Paying Off Student Loans with Home Equity

There are a few potential negatives that could impact your decision to pay off student loans with your home equity. Firstly, using your home equity to pay off your student loans could potentially put your home at risk.

You’re combining your student loans and mortgage into one debt, now all tied to your home. That means if you run into any financial issues in the future and are unable to make payments, in severe cases, such as loan default, your home could be foreclosed on.

Second, when you use your home equity to pay off your student loans, you’ll still owe the debt (now as a part of your mortgage), but you’ll no longer be eligible for borrower protections that are afforded to borrowers who have federal loans.

These benefits include deferment or forbearance, which could allow you to temporarily pause payments in the event of financial hardship, and income-driven repayment plans, which tie a borrower’s monthly payment to a percentage of their discretionary income.

If you are pursuing student loan forgiveness through one of the programs available to federal borrowers, for example Public Service Loan Forgiveness, consolidating your student loan debt with your mortgage would eliminate you from the program. If you’re currently taking advantage of any of these options it may not make sense to use the equity in your home to pay off your student loans.

As you weigh your options, you might consider comparing the available equity in your home to the amount you owe in student loans. In some cases, you may owe more in student loan debt than you have available to use in home equity under the various loan guidelines.

When It’s Time to Leverage Your Home Equity

Cashing in on your home equity isn’t as easy as withdrawing money from your checking account, but it’s also not as difficult as you might think.

A good first step is to contact a mortgage lender, who will order an appraisal of your home and get you started on the paperwork. It could also be a good idea to check your credit score.

To secure a cash-out refinance lenders’ guidelines will likely require a credit score of 620 or higher. The minimum score required depends upon many factors such as credit, income, equity and more. If you don’t meet the minimum fico score requirement for your chosen program, you might want to make a few changes to improve your credit score before applying for a cash-out refinance.

At the very least, you’ll likely need your latest tax filings, pay stubs, and bank statements. Lenders use those documents to evaluate whether you have the savings and cash flow to pay back a fatter mortgage, and they may ask for them every time you try to refinance. So it can be helpful to keep them handy.

When utilized responsibly, home equity can be a useful tool in helping to improve your overall finances. Home equity can be used for almost any purpose such as consolidating higher interest credit card debt, student loan debt or home improvements.

Shop Smart

Interested in using your home’s equity to pay off your student loan debt? Take a look at SoFi. This student loan cash-out refinance option offers qualified borrowers competitive rates with no cash-out pricing add-ons applied.

Pre-qualifying takes just two minutes online, so you can get an idea of the rates and terms available to you. Loans are usually approved in about 30 days.

Unlike taking your chances with the lottery, the odds could be more in your favor when you leverage your home equity responsibly. Explore your rate and term options, and then get in touch with us to start the refinancing process. Learning is a lifetime commitment; student loan debt doesn’t have to be.

Learn more about borrowing a student loan cash-out refinance with SoFi.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Student Loan Refinance
If you are looking to refinance federal student loans, please be aware that the White House has announced up to $20,000 of student loan forgiveness for Pell Grant recipients and $10,000 for qualifying borrowers whose student loans are federally held. Additionally, the federal student loan payment pause and interest holiday has been extended beyond December 31, 2022. Please carefully consider these changes before refinancing federally held loans with SoFi, since the amount or portion of your federal student debt that you refinance will no longer qualify for the federal loan payment suspension, interest waiver, or any other current or future benefits applicable to federal loans. If you qualify for federal student loan forgiveness and still wish to refinance, leave unrefinanced the amount you expect to be forgiven to receive your federal benefit.

CLICK HERE for more information.

Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information.


All your finances.
All in one app.

SoFi QR code, Download now, scan this with your phone’s camera

All your finances.
All in one app.

App Store rating

SoFi iOS App, Download on the App Store
SoFi Android App, Get it on Google Play

TLS 1.2 Encrypted
Equal Housing Lender