No matter how you personally feel about homeownership, most agree on a few points: it’s a major financial milestone, large financial commitment, and a source of long-term financial stability.
Owning a home can also be a fantastic tool to help pay off student debt; you simply have to think “outside the box” in terms of the way you leverage this asset. Here are four ways homeowners can cash in on their domiciles to pay off student debt.
1. Rent out a room in your house
If you have a spare guest room that doesn’t see much use from friends on visiting in-laws, that’s money you could put towards your student loans each month. Depending on where you live, renting a room could net you upwards of $11,700 per year.
Assuming you have $30,000 in student loan debt at 5% interest on the 10-year Standard Repayment Plan, your monthly payment would be $318.20. Now, throw an extra $400 in rental income toward your payments each month – your loan can be paid off in under four years, saving more than $5,000 in interest! Check it out for yourself:
Granted, this option may be more feasible for single homeowners than married couples and families since you lose a bit of privacy. However, a little discomfort now could pay off big later!
2. Pay off student debt with AirBnB
Not sure if a long-term tenant is right for you? Using AirBnB to rent your space to tourists and travelers for extended stretches of time can be a great way to gather extra cash for debt payoff.
If you live in a large city or popular tourist destination, renting your home through AirBnB (either the full home or a room in the home) during peak seasons could help you earn a large amount of money for a relatively small amount of work.
Sure, you have to keep the place spotless – not to mention you’ll have a stranger in your home for a few days (or weeks, depending upon their length of stay). But using AirBnB allows landlords more flexibility because hosts get to choose the terms for when their place gets rented, rent to vetted candidates only, and take the home “off the market” when it’s occupied.
Here’s the math: take the same scenario above ($30,000 student loan balance at 5% interest paid over 10 years.) Say you AirBnB your home while you’re away on summer vacation for one week for $1,200. That one-time, lump sum payment of $1,200 takes six months off the life of your loan.
3. Use home equity
If you are fortunate enough to have a large amount of equity in your home, it may be worth evaluating your options of using that equity to pay off your student loans that are accruing interest at a higher rate.
The advantages to this option include a potentially lower interest rate, having lower monthly debt payments, and certain tax benefits.
There are also some major risks of using home equity to pay off student loans, such as hidden costs, giving up federal protections like deferment and forbearance, and risking your home should you be unable to make payments. Also, note most lenders require that you retain 10 to 20 percent equity in the home after you’ve borrowed.
Whether or not you should go this route really depends on your financial circumstances and ability to comfortably make payments each month. But if you’ve achieved homeownership and still have a large amount of student loan debt left, it could be worth considering using your home’s equity to lower your overall debt burden.
4. Real estate investing
There are two types of real estate investors: those who buy-and-flip and those who buy-and-rent. You can buy a property, flip it, and use the proceeds to tackle your student loan in one big chunks. You can also purchase a rental property and use the extra income each month to increase the amount you’re putting toward your student loans.
The buy-and-rent option is often a more doable option than trying to flip a home, as investors often have little control over the timing of sale and have to factor in expenses such as renovations and property taxes.
For those who favor a slow and steady approach, being a landlord is a great way to get the benefit of extra monthly income, without having to sacrifice your privacy/sanity like in option one.
These four options for leveraging your home to pay off student loans will help you set aside a significant amount of money, rather than scrimping here and saving there. Once you pay off your student debt, all that cash flow can continue to help you accomplish other financial goals such as saving and investing for retirement.
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