Note that the situation for student loans has changed due to the impact of the coronavirus outbreak and relief efforts from the government, student loan lenders and others. Check out our Student Loan Hero Coronavirus Information Center for additional news and details.
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Owning a home can help you repay student loan debt; you simply have to think “outside the box” in terms of the way you leverage this asset.
If you’re wondering whether to sell your house to pay off student loans, keep in mind that there are less drastic strategies, from renting out your space, borrowing from your home’s equity and potentially taking on the more risky strategy of real estate investing.
Here are five questions homeowners can ask themselves as they consider ways to cash in on their residence to pay off education debt:
1. Should you sell your house to pay off student loans?
2. Do you have a spare room to rent out?
3. Are you comfortable renting out your property while you’re away?
4. Should you use your home’s equity to pay down student debt?
5. Is real estate investing right for you?
The roof over your head is more important than the student debt weighing on your mind.
After all, you could lose your home if you stop making mortgage payments, whereas there are many options to lower or postpone your student loan payments without suffering such serious consequences.
Still, selling your house to pay off student loans could make sense if…
- Your mortgage payment isn’t affordable, or your home is more than you need for your preferred lifestyle.
- Renting it out (see options 2 and 3, below) isn’t a better financial choice.
- Other aspects of your personal finances are in order, and you’re not saddled with credit card or other debt.
- You’ll have a strong enough cash flow (after the sale) for alternative housing, whether you plan to rent or buy a new home.
On that last point, keep in mind that to sell your house to pay off student loans, you need to own more of your property than you owe on your mortgage (after accounting for moving expenses, real estate agent fees and closing costs). Speaking with a certified financial professional could help you confirm what’s right for your situation.
Instead of selling, you might consider the less risky options below.
If you have a spare guest room that doesn’t see much use from friends or 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 thousands of dollars per year.
How big of a dent could that make in your student debt?
Assuming you have $30,000 in student loan debt at 5.00% interest on the 10-year Standard Repayment Plan, your monthly payment would be $318, according to our monthly payment calculator. Now, throw an extra $400 in rental income toward your payments each month – your loan can be paid off in six years, saving more than $5,000 in interest.
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 compromise now could pay off big later.
If it’s not a fit, remember that renting out a room is just one of many ways to make extra money without getting a second job.
Not sure if a long-term tenant is right for you? Using Airbnb and similar short-term rental sites to rent your space to tourists and travelers for extended periods 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 (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 and similar sites allows homeowners more flexibility because as a host, you get to…
- Choose the terms for when your place gets rented.
- Rent to vetted candidates only.
- Take the home off the market when it’s occupied.
As for the possible student loan payoff: Take the same scenario above ($30,000 student loan balance at 5.00% interest paid over 10 years.) Say you list your home for $1,200 a week while you’re away on vacation. That one-time, lump-sum payment of $1,200 would trim six months off the life of your loan.
Lump Sum Extra Payment Calculator
If you have a large amount of equity in your home, you might consider using it to pay off student loans that are accruing interest at a higher rate.
- Consolidating mortgage and student loan payments into one bill.
- A potentially lower interest rate.
- Certain tax benefits.
There are also some major risks of using home equity to pay off student loans, such as…
- Potentially paying more interest over time.
- Hidden costs and fees.
- Yielding student loan protections like deferment and forbearance.
- Putting your home at risk of being seized, should you be unable to make payments.
Also, note most lenders require that you retain ownership of 10% to 30% of the home’s value after you’ve borrowed.
Whether or not you should go this route depends on your financial circumstances and ability to make monthly payments comfortably. 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.
There are two types of real estate investing strategies that could yield profits to put toward outstanding student loan debt:
- Buy and flip: Selling the property for a higher price than you originally paid, perhaps after funding major home improvements
- Buy and rent: Finding tenants for a property after you’ve fixed it up.
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 home sales 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 (and sanity) like in option one.
With that said, both of these strategies aren’t for beginners. Buying a house with student debt is complicated enough, let alone purchasing a property merely to re-sell or rent out. Before choosing either path, it’s wise to consult experts who have been there, done that. You’ll also want to imagine the nightmare scenario of suddenly being burdened with student loan and needless mortgage debt.
The safer way to pay down student debt likely centers around selling or renting out a property you already own (see options 1, 2 and 3, above), if possible.
Of course, there are also all kinds of ways to pay off your student loans faster without putting your home at risk.
Andrew Pentis contributed to this report.
Interested in refinancing student loans?Here are the top 6 lenders of 2020!
|Lender||Variable APR||Eligible Degrees|
|1.89% – 6.66%1||Undergrad & Graduate|
|1.89% – 5.90%2||Undergrad & Graduate|
|2.25% – 6.09%3||Undergrad & Graduate|
|1.99% – 5.64%4||Undergrad & Graduate|
|1.98% – 8.55%5||Undergrad & Graduate|
|2.39% – 6.01%||Undergrad |
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1 Important Disclosures for Splash Financial.
Splash Financial Disclosures
Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet applicable underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers. If approved, your actual rate will be within a range of rates and will depend on a variety of factors, including term of loan, a responsible financial history, income and other factors. Refinancing or consolidating private and federal student loans may not be the right decision for everyone. Federal loans carry special benefits not available for loans made through Splash Financial, for example, public service loan forgiveness and economic hardship programs, fee waivers and rebates on the principal, which may not be accessible to you after you refinance. The rates displayed may include a 0.25% autopay discount.
The information you provide to us is an inquiry to determine whether we or our lenders can make a loan offer that meets your needs. If we or any of our lending partners has an available loan offer for you, you will be invited to submit a loan application to the lender for its review. We do not guarantee that you will receive any loan offers or that your loan application will be approved. Offers are subject to credit approval and are available only to U.S. citizens or permanent residents who meet applicable underwriting requirements. Not all borrowers will receive the lowest rates, which are available to the most qualified borrowers. Participating lenders, rates and terms are subject to change at any time without notice.
To check the rates and terms you qualify for, Splash Financial conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the lender will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
Splash Financial and our lending partners reserve the right to modify or discontinue products and benefits at any time without notice. To qualify, a borrower must be a U.S. citizen and meet our lending partner’s underwriting requirements. Lowest rates are reserved for the highest qualified borrowers. This information is current as of October 1, 2020.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
As used throughout these Terms & Conditions, the term “Lender” refers to KeyBank National Association and its affiliates, agents, guaranty insurers, investors, assigns, and successors in interest.
Assumptions: Repayment examples above assume a loan amount of $10,000 with repayment beginning immediately following disbursement. Repayment examples do not include the 0.25% AutoPay Discount.
Annual Percentage Rate (“APR”): This term represents the actual cost of financing to the borrower over the life of the loan expressed as a yearly rate.
Interest Rate: A simple annual rate that is applied to an unpaid balance.
Variable Rates: The current index for variable rate loans is derived from the one-month London Interbank Offered Rate (“LIBOR”) and changes in the LIBOR index may cause your monthly payment to increase. Borrowers who take out a term of 5, 7, or 10 years will have a maximum interest rate of 9%, those who take out a 15 or 20-year variable loan will have a maximum interest rate of 10%.
KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.
This information is current as of September 9, 2020. Information and rates are subject to change without notice.
3 Important Disclosures for SoFi.
4 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 2.98% APR (with Auto Pay) to 5.79% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 5.64% 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 July 31, 2020, 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 7/31/2020. 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 [email protected], or call 888-601-2801 for more information on our student loan refinance product.
© 2020 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.
5 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.
Subject to floor rate and may require the automatic payments be made from a checking or savings account with the lender. The rate reduction will be removed and the rate will be increased by 0.25% upon any cancellation or failed collection attempt of the automatic payment and will be suspended during any period of deferment or forbearance. As a result, during the forbearance or suspension period, and/or if the automatic payment is canceled, any increase will take the form of higher payments. The lowest advertised variable APR is only available for loan terms of 5 years and is reserved for applicants with FICO scores of at least 810.
As of 10/15/2020 student loan refinancing rates range from 1.98% APR to 8.55% Variable APR with AutoPay and 2.99% APR to 8.77% Fixed APR with AutoPay.