Dear Dr. Don,
I am a parent who has U.S. Department of Education consolidated school loans for students who have completed their education. I wanted to know if there is any way I can reconsolidate these student loans privately. My current rate is 6.75 percent, which is quite high. Please advise.
— Jim Juncture
I’m not aware of any private lenders that offer federal student loan consolidation. Some private lenders do offer private student loan consolidation.
Leaving the federal program may cost you future flexibility in repayment options and potential education tax benefits. Borrowers can consolidate existing consolidation loans into a new Direct consolidation loan if they include at least one other federal family education loan or Direct loan into the new consolidation loan. That doesn’t appear to be your situation.
Parents in your position can look into whether a home equity loan or a cash-out refinance of a first mortgage makes financial sense. In today’s market, it’s far more likely that the cash-out refinancing offers the bigger benefit in terms of a lower interest rate, versus a home equity loan.
Bankrate’s national average for a 15-year fixed-rate mortgage is 3.04 percent as of this column’s publish time, while the average for a home equity loan is 6.35 percent, and the average for a home equity line of credit is 5.15 percent.
There are limits on the tax deductibility of mortgage interest expense. In general, you can deduct the interest expense for $100,000 in home equity debt, plus the interest on any mortgage debt used to buy, build or improve the main home, or the mortgage interest on a second home.
Talk to your tax professional and/or review IRS Publication 936, Home Mortgage Interest Deduction, if you’re uncertain about the tax deductibility of using mortgage debt to refinance the student loans, rather than seeking new consolidation.
Thanks to Patricia Nash Christel, a spokeswoman at Sallie Mae, for helping me with this reply.
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