# Using home equity to repay student loans



## alte (Sep 4, 2010)

I will be graduating in a few weeks with over 100k in loans, the majority of which are at 6.8% interest. My family is willing to take a new loan against the house at 4.25% in order to pay all of the student loans in one go. I will be responsible for the new mortgage however. My question is, is the transition from student loans to mortgage a good idea?
The way I see it,

Pros
-2.55% Interest rate 

Cons
No student loan tax deduction (amounts to maximum $2500 each year)
No deferment, forbearance 

Is there anything else I am missing?

Also, my current approach is to aggressively pay off the loans as early as possible. Considering inflation and the loan rate of 6.8%, is this a good idea? Should I string them along as long as I can (15-30 years as opposed to 8-10)? I remember hearing how student loans are the good kind of loans to have. Don’t know why though.

Thanks for any help


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## VanDamMan (Nov 2, 2009)

If anything happens to you, unemployment, getting hurt, etc, you will loose the covenants that come with the government sanctioned loan. You also won't get the credit history that comes with paying that down. Lastly, I think Obama put in some law that said any balance left on loans that are in good standing after age 35 can be forgiven. I don't recall the exact details. Personally, I'd probably stick with the 6%.

BTW this should probably be in the education section.


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## kelsomania (Oct 12, 2010)

Wouldn't that put your parents' home at risk if you defaulted? I wouldn't feel comfortable doing that unless your parents will make the payments if you ever lose your job. 

Student loan debt it supposedly the good kind of debt to have because it allows you to increase the amount of money you can make in your lifetime. According to my financial self help book, the average high school graduate will make $1.2 million while college graduates will make $2.1 million. So in theory, you invested $100,000 to make an extra million which is a great deal.

I would pay more than the minimum payment. It will reduce the amount of money you pay in interest drastically.

Another reason not to do it, I think your student loan is usually forgiven if you die. Your parents would be stuck paying the new mortgage.


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## RockIt (Jan 8, 2011)

I would seek professional advice.

That said, I do know for sure that the Obama loan forgiveness proposal wasn't age 35, it was after 20 years of repaying your loans. Also, there is an option if you are in certain public sector employment then your balance can be forgiven after 10 years of repayment.

http://www.finaid.org/loans/publicservice.phtml


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## alte (Sep 4, 2010)

Rockit, the public service loan forgiveness option does allow all loans to be forgiven after 10 years or 120 consecutive monthly payments. Another aspect of it, is that it adjusts loan repayment based on income to ensure that you don't have to pay too great a portion of your income towards loans. Obviously, both are good things. One drawback of it though, as you said, is that you have to work in certain areas after graduation for x number of years. It is a great option for those who know for sure they want to work in these areas. I don't and I want to keep my options open at this point, which is why I am not considering going down this path.

Kelsomania, not wanting my parents to get into any financial trouble is the main reason I am heavily leaning against the idea of using home equity to pay my debt. I made the post under the assumption I am able to make payments on time. Also, I should have clarified that I am graduating from medical school, not undergraduate college and that having over $100,000 in loans is quite normal for a med. school graduate. From a financial point of view, I don't know if this is a good investment because I have never sat down and plugged in the numbers but I have a hunch that it is.

VanDamMan, there certainly are perks associated with student loans. Thanks for mentioning the benefits to credit history, I did not realize this.


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