Hot housing market eliminates some risks from using cash-out refinances for student loans

Take advantage of the hot housing market and roll your student loans into your mortgage with a cash-out refinance. (iStock)

Low mortgage rates bring more benefits to the table than just your house payment during the process of home buying. Mortgage lenders are beginning to offer refinance and first-time homebuyer products that can roll your student loan into your mortgage.

Rolling your student loan into your mortgage, also known as "debt reshuffling," involves taking out a cash-out mortgage refinance loan and using those funds to pay off student loan debt. While this method is controversial due to the risks associated with rolling the burden of student debt into mortgage loans, homeowners in particular financial situations can lower those risks by taking advantage of the low mortgage rates and hot real estate market.  

You can explore your mortgage options by visiting Credible to compare rates and lenders throughout the mortgage process.


Traditional risks of rolling student loans into mortgages

1. Giving up benefits that come with federal student loans

Taking out a federal student loan comes with certain borrower protections and benefits: 

  • Repayment plans: The federal government provides repayment plans as a percentage of a borrower's income to help lower monthly payments.
  • Loan forgiveness: In some situations, borrowers can have their student loans forgiven, canceled or discharged. There are several different forgiveness options.
  • Forbearance agreement: This option allows borrowers to temporarily stop or reduce monthly student loan payments with accrued interest. Forbearance usually lasts up to 12 months at a time.
  • Deferment agreement: Borrowers can pause or reduce payments with no accrued interest.

Rolling student loans into your mortgage could mean you lose access to these benefits.

2. Putting your home at risk

Student loans are unsecured debt, similar to a personal loan, meaning there’s no collateral to back the loan. Your mortgage is a secured loan – like an auto loan – and is backed by your house. 

Adding your $30,000 student loan to your mortgage at 4.5% for 15 years means you’ll be paying an additional $230 on your mortgage payment per month. When you increase the amount owed as you work to pay off your mortgage, you risk not being able to make payments and losing your home.

3. Paying more interest

Take a careful look at the numbers or you might just be paying more interest by rolling student loans into your mortgage. Even if you end up with a lower interest rate after refinancing, you could still end up paying more in interest if the payment terms are extended.

A hot housing market lowers all of these risks. With a cash-out refinance, you can only take cash out up to 80% of your home equity and because of rising home prices, the risk of foreclosure is much lower. 

You can visit Credible to get prequalified rates without impacting your credit score.


Should you get a cash-out refinance?

From 2006 to 2021, the average interest rates for federal student loans were:

  • 4.66% for undergraduate student loans
  • 6.22% for graduate student loans
  • 7.27% for parents and graduate students taking out PLUS loans

By rolling your student loans into your home mortgage, you can reduce your number of monthly payments. When your student loans are divided between several lenders, this can help immensely when working to pay off debt. 

A cash-out refinance can also allow you to extend the loan term of your student loan; however, pay close attention to your equity levels and credit health when considering this option. Bad credit would mean your FICO score falls between 300 and 579, and fair credit means you score falls between 580 and 669. Once you achieve a credit score of 670 or higher, you fall into the category of good credit at the very least.


Visit an online marketplace like Credible to view refinance rates and get cash out to pay off student loan debt.

What other options do you have?

If a cash-out refinance isn’t right for you and your personal finance situation, there are other options like refinancing your student loan. Here are a few pros to consider when refinancing student loans:

  • Change your payment plan
  • Lower monthly payments
  • Reduce your interest rate
  • Cut down your number of debt payments
  • Release a cosigner
  • Get a different loan servicer

You can still take advantage of today’s low-rate environment by refinancing your home mortgage to save on your debt payments. Because rates are so low, homeowners can save money over the life of their mortgage by refinancing.


Refinancing can potentially save you thousands of dollars and with the current housing market, there’s no better time to refinance your mortgage or your student loan debt.

Visit Credible to learn more about private student loan options and get personalized rates from multiple lenders without affecting your credit score.

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