How your house can help you pay off student debt
Student loans are a fact of life for many Americans. But with the cost of college ballooning over the past few decades, many people are stuck paying off their student loans well into their 20s and even their 30s. And, according to a recent study from strategic insights firm Opinium, 40% of U.S. adults with student loans say that paying their debt is "unmanageable."
There are steps you can take, though, to make it a bit easier. For example, if you own a home, you can use that equity to ease your journey toward paying off your student debt.
Start comparing your home equity loan options today.
How your house can help you pay off student debt
A home equity loan can be used for many purposes. Some borrow against their home equity to pay for home improvement projects while others use it to fund a small business. Another use for a home equity loan is to consolidate other loans – and perhaps even get a more favorable rate.
Here are a few ways that using your home equity can help make paying off your student loans much easier.
You can improve your interest rate
While student loans don't generally have terribly high interest rates, it is possible that you'll be able to improve your interest rate by replacing your student loan with a home equity loan, which currently has an average national interest rate of 8.95%.
If you are able to find a home equity loan with a lower interest rate than your student loans, you simply borrow the money you need to pay off your student loans. You then pay off the entirety of your student loan debt, ending that debt. From there, you pay off your home equity loan according to the terms set by your new lender.
Even if using a home equity loan to pay off your student loans is "not as appealing anymore" because of the current rates, you still might be able to use a home equity loan for other debts, according to financial advisor Kim Hall of Clarity Wealth Development,. Credit card debt, for instance, frequently carries a very high interest rate — which you can use a home equity loan to get out from under.
Compare home equity rates online right now.
You can consolidate multiple loans
While some people with student loans borrow the money from one source, many end up borrowing from multiple lenders. Furthermore, if you end up going to graduate school, you could end up with another lender for those loans. Having multiple lenders to pay back can create a lot of headaches for borrowers. There are multiple payment schedules to know, and it can become difficult to keep track of. Automatic payments can help, but it's still easy to get lost.
With a home equity loan, on the other hand, you will have one lender to pay back. You take out a home equity loan to cover all of your debts, pay them off, and then make one monthly payment to a single lender. You can even include other loans — credit card debt, for instance — in this plan, making your financial life even more simple.
You can get a predictable rate
While some student loans have fixed interest rates, others have variable rates that change based on current economic conditions. And with rates going up quickly over the past 18 months — the result of repeated action by the Federal Reserve as an attempt to fight inflation — someone with a variable interest rate could be interested in switching to a fixed rate.
Most home equity loans are fixed. If you want to pay off your student loan with a fixed rate, using a home equity loan to pay off your variable-rate student loan might make sense.
The bottom line
Student loans can be a serious source of financial stress for many people. Opinium's survey found that 61% of student loan borrowers don't feel prepared to start repaying their student loans now that the COVID-era pause is over. While you can't wave a magic wand to make your debts go away, you can make it easier to pay them off by using a home equity loan. You can lower your rate, consolidate your debt and get a fixed rate, all of which could make paying off the debt easier in the long run.
