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HELOC for Student Loans or Not

Started by dgab85, June 18, 2020, 01:24:33 pm

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dgab85

I currently own a townhome with a balance of $70k and it is worth about $150k. My monthly payments are about $430 a month at 4.5% interest. My student loans are about 84k at 5.5% interest. I am considering refinancing my home which will bring me to a 3.75% interest and taking out a HELOC of about $40k. I would like to know your thoughts if I should take out a HELOC to pay off 40k of my student loans?  I have been aggressively paying my student loans should be done in 3 years.

TheCollegeInvestor

Not really a fan of doing it. You're shifting the risk from yourself (which, yes, sucks, but there are a lot of programs and options), to your home (with no options except to lose your home).

You didn't say what type of loans you have - which definitely shifts the decision. Federal loans is likely a hard no. You give up income-driven repayment, loan forgiveness plans, and hardship options - like right now during Covid-19 Federal loans are paused with 0% interest. That's amazing.

Also, what if (in the unlikely situation) they do pass loan forgiveness - even partial. They aren't going to offer that on your HELOC. Only for Federal loans.

Private loans are a maybe, but you have to ask yourself if the risk is worth it.