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Here are a few things to remember: For student borrowers with plenty of savings for a rainy day, a good job, and a solid understanding of the risks and benefits, a home equity loan may offer an opportunity to pay off your student loans at a lower interest rate.
Should I use a home equity loan to refinance my student loans at a lower interest rate? Student loan borrowers who have built equity in their homes may find that paying back outstanding student debt with a new home equity loan looks appealing, given today’s historically low interest rates, but putting more debt on your home can lead to problems down the road.
Before you take out a home equity loan to pay off a student loan, you should try to look for a student loan refinance product first and see what rate you can get.
You may be able to lower your interest rate without some of the risks that come with a decision to tap the equity in your home.
You would be able to lower your monthly payments and put the savings toward a financial goal, like starting a retirement plan or a small business.
Unfortunately, there aren’t many options available to refinance your student loans.
Recently, we’ve received a lot of questions from consumers who are considering using a home equity loan to pay down high-rate student debt.
We’ve uploaded this question and others on student loan refinancing to Ask CFPB.
Last month, we published a report on student loan affordability, which talked about the problems borrowers experienced when repaying student loans with high interest rates.
The report also talked about the limited alternative repayment options, including refinancing, that are currently available to borrowers.
When we talk about refinancing a student loan, we generally mean taking out a new education loan with better terms and using it to pay off existing student debt.
Refinancing your student loan could help you take advantage of any improvements in your credit profile that have occurred since you were a student, as well as today’s historically low interest rates.