From balance-transfer credit cards to loan modifications, there are options for borrowers who want to pay off or consolidate what they owe. Rolling student loans into your mortgage — two of the most common types of debt — is one of those options.

Should you roll student loans into mortgage?

In the first quarter of 2021, student loan debt stood at $1.58 trillion, according to Federal Reserve data. That number pales in comparison to mortgages, though: more than $10 trillion.

If you have both types of debt, you might be considering rolling your student loans into your mortgage rather than making two monthly payments. Paying one loan with another loan is referred to as “consolidation” or “debt reshuffling.” Although it might feel good to have one less bill to pay, debt reshuffling is not magic. You still owe the money — you’ve just changed the terms, and possibly forfeited protections you might need later.

“The reality is that with consolidation it feels like you’re making progress,” says Chris Hogan, financial coach and author of “Everyday Millionaires.” “You’re taking this big chunk of student loan debt and getting rid of it.”

Really, though, you are attaching that debt to your home in place of equity. It’s a move that requires careful consideration.

“The goal of the home is for you to own it,” Hogan says. “What you’re doing is taking the equity out of your home immediately by the size of the student loan debt.”

If you’re thinking about rolling your student loans into your mortgage, it’s important to weigh the upside against the potential drawbacks.

Why you might want to roll student loans into mortgage

The main reason to consider refinancing your mortgage to pay off student debt is that you could reduce the interest you pay. The average interest rate on a fixed-rate, 30-year mortgage was just over 3 percent at the end of May 2021, compared with average rates between 2.75 percent and 5.3 percent for subsidized, unsubsidized and PLUS federal student loans. Private student loan borrowing costs can be much higher: up to 12.99 percent. If you have a PLUS loan or a private loan, locking in a much lower rate via your mortgage could have a meaningful impact on your bottom line.

Why you might want to think twice about rolling student loans into mortgage

Not every borrower who rolls student loans into a mortgage will save money. You need to take a look at the interest rate on your student loans versus the interest rate you might pay on a refinanced mortgage, as well as whether there’s a prepayment penalty and what the closing costs will be.

“I think it’s pretty tricky,” says Sally Greenberg, executive director of the National Consumers League, a consumer advocacy organization. “It takes someone who’s financially very savvy to roll your student loans, which usually have higher interest rates than mortgages, into your home loan,” adding, “I would worry that there would be something buried in the fine print, or some arrangement which ends up costing you a lot more than just working to pay off your student loan separate from your mortgage.”

Greenberg recommends consulting an actuary or an accountant who can help you crunch the numbers to see if it makes financial sense.

It’s not just about the numbers, either. Rolling student loans into a mortgage means you’ll give up inherent benefits. For instance, if you lose your job, you could apply to have your student loans deferred so you can reduce your payments or stop making them for a time.

If you roll your student loans into your home loan, however, you no longer get this perk — now you just have a mortgage, and a bigger loan. This increases your chances of not being able to repay it, which increases the chances that a lender could foreclose and you could lose your home.

The extra debt also reduces the equity you have in your home, so if home values decline, you could have negative equity, also known as being underwater. This could lead to problems if you want to sell your home.

“I’ve talked to people who couldn’t move because they were underwater. That loan has to be paid off before you sell. Now you might have to pass up a great career opportunity because you owe too much on your house,” Hogan warns. In general, it’s a good idea to keep your employment prospects at the top of your financial survival list.

“There are probably better ways to get your student loan rate down,” Greenberg says. “There are federal loan repayment programs and student-loan refinancing that I would explore before going this route.”

How to roll student loans into mortgage

If you do the math and determine that rolling your student loans into your mortgage is the right move for you, you have a few options:

  • Fannie Mae Student Loan Cash-Out Refinance: While traditional cash-out refinance programs allow you to access cash to utilize for a number of purposes, this program is solely geared toward using that money to pay off your student debt. At closing, the money will go directly to the servicer of your student loan, and the entire loan must be paid back, not just a portion of it. You might receive some cash, too, but it’s limited to no more than 2 percent of the new loan, or $2,000, whichever is less.
  • Cash-out refinance: You can also consider a standard cash-out refinance, which will allow you to access additional funds. You can contribute some toward your student loans and use the rest for other reasons, such as renovating your home or paying off high-interest credit card debt (which is typically much pricier than student loans and should be a top priority to repay). Be sure you understand how a higher monthly mortgage payment and a lower student loan payment would impact your monthly budget.
  • Home equity line of credit: A HELOC — home equity line of credit — is also an option for rolling your student loans into a mortgage. With this option, you’ll borrow against your home’s equity to get the funds that will then go toward your student debt. Consider this option carefully — HELOCs typically have variable rates, so the interest could increase, negating any headway you might be making.

Other ways to consolidate student loans

If you’re concerned about the amount of money you still owe for your education, there are other options that can help create room in your budget and reduce the overall price of your debt:

  • Refinance the student loans: Instead of refinancing your mortgage, simply refinance the student loans. Use Bankrate’s student loan refinance calculator to get an idea of how much you can save.
  • Find out if you can consolidate your student loans: The government may be able to help. If your loans are eligible for the U.S. Department of Education’s Direct Consolidation Loan, you might be able to draw out the payment period. While you could pay more over the life of the loan, you can also give yourself some wiggle room in your monthly budget. You can also explore other debt consolidation loan options for any other balances you owe.
  • See if your loans can be forgiven: What’s better than shrinking your payments? Eliminating them altogether. If you work for the government or a qualifying nonprofit organization and meet some other requirements, you might be able to score forgiveness for your student loans.

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