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.
Get multiple mortgage offers at once
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
|Lender||Variable APR||Eligible Degrees|
|Check out the testimonials and our in-depth reviews!
1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 6.97% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.30% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at firstname.lastname@example.org, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
APR stands for “Annual Percentage Rate.” Rates listed include a 0.25% EFT discount, for automatic payments made from a checking or savings account. Interest rates as of 11/8/2018. Rates subject to change.
Variable rate options consist of a range from 3.27% per year to 6.09% per year for a 5-year term, 4.64% per year to 6.14% per year for a 7-year term, 4.69% per year to 6.19% per year for a 10-year term, 4.94% per year to 6.44% per year for a 15-year term, or 5.19% per year to 6.69% per year for a 20-year term, with no origination fees. APR is subject to increase after consummation. The variable interest rate will change on the first day of every month (“Change Date”) if the Current Index changes. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes. The variable interest rates are calculated by adding a margin ranging from 0.98% to 3.80% for the 5-year term loan, 2.35% to 3.85% for the 7-year term loan, 2.40% to 3.90% for the 10-year term loan, 2.65% to 4.15% for the 15-year term loan, and 2.90% to 4.40% for the 20-year term loan, respectively, to the 1-month LIBOR index published on the 25th day of each month immediately preceding each “Change Date,” as defined above, rounded to two decimal places, with no origination fees. If the 25th day of the month is not a business day or is a US federal holiday, the reference date will be the most recent date preceding the 25th day of the month that is a business day. The monthly payment for a sample $10,000 loan at a range of 3.27% per year to 6.09% per year for a 5-year term would be from $180.89 to $193.75. The monthly payment for a sample $10,000 loan at a range of 4.64% per year to 6.14% per year for a 7-year term would be from $139.65 to $146.76. The monthly payment for a sample $10,000 loan at a range of 4.69% per year to 6.19% per year for a 10-year term would be from $104.56 to $111.98. The monthly payment for a sample $10,000 loan at a range of 4.94% per year to 6.44% per year for a 15-year term would be from $78.77 to $86.78. The monthly payment for a sample $10,000 loan at a range of 5.19% per year to 6.69% per year for a 20-year term would be from $67.05 to $75.68.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.
All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.28% effective October 10, 2018.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.47% – 6.99%3||Undergrad & Graduate|
|2.47% – 6.30%1||Undergrad & Graduate|
|2.51% – 8.09%4||Undergrad & Graduate|
|3.02% – 6.44%2||Undergrad & Graduate|
|2.69% – 7.21%5||Undergrad & Graduate|
|2.79% – 8.39%6||Undergrad & Graduate|