Putting Student Loans Into a Mortgage: Pros & Cons

Q: Can student loans be included into a mortgage?

Student loans can be rolled into a mortgage via a cash-out refinance or home equity line of credit (HELOC) if you have enough equity in your home.

Q: How are student loans factored into a mortgage?

Rolling student loans into your mortgage is a method of consolidation or debt reshuffling. You’ll pay back the new, higher amount over the agreed-upon terms, often 15 or 30 years.

Q: Can student loans prevent you from qualifying for a mortgage?

Student loan debt may make it harder to qualify for a mortgage because it impacts your debt-to-income (DTI) ratio. Lenders look at your DTI ratio to make sure your debt obligations aren’t too high compared to your income.

Rebecca SafierUpdated April 17, 2023

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If you’re a homeowner with student loans, you may be considering rolling your student loans into your mortgage. Combining your student debt with your home loan can simplify repayment by reducing multiple bills to one, but there are potential downsides to consider. The complex tax situation you would create means it’s a good idea to speak with a financial advisor before you reshuffle your debt in this way.

What Does Rolling Student Loans Into a Mortgage Mean?

If you’re exploring different ideas for repaying student loans, you might be looking into mortgage programs that pay off student loans. Rolling student loans into a mortgage is a form of consolidation or debt reshuffling. If you’re a homeowner, you may be able to draw on the equity in your home with a cash-out refinance or home equity line of credit (HELOC). Lenders typically let you draw on up to 80% to 90% of your available equity. You can use the funds you get from your cash-out refinance or HELOC to pay off your student loans. Then, you’ll pay back your new mortgage or HELOC on the agreed-upon terms. This approach to student loan repayment is dependent on how much equity you have in your home. If you don’t have enough to cover your student loan debt, you won’t be able to completely roll your student loans into your mortgage. If you do, however, you can pay off your student loans with the cash you took out of your home. You won’t owe student debt anymore, but you’ll owe a larger debt on your house than you did previously.

Pros and Cons of Rolling Student Loans Into a Mortgage

There are both pros and cons to rolling student loans into a mortgage. Weigh these issues carefully before you move forward with this form of debt consolidation.

Potential Pros	Potential Cons
Consolidate your debts	Risk foreclosure on your home
Reduce your interest rates	Lose access to federal student loan protections
Gain tax benefits	Increase your interest costs
Lower your monthly payment	Have trouble qualifying

Pros

Consolidate your debts. Many student loan borrowers have to pay back multiple student loan bills to different loan servicers. If you roll your student debt into your mortgage, you can simplify things by having a single payment to make. Combining your debts could make repayment easier to manage and work into your budget.
Reduce your interest rates. Depending on your credit and other factors, you could qualify for a lower rate on a cash-out refinance or HELOC than you have on your student loans. Reducing your interest rate could lead to savings on interest charges.
Gain tax benefits. You may be able to write off some of the interest you pay on your mortgage, potentially gaining greater tax benefits than you’d have on student loans. Since the situation is complicated, though, it’s worth consulting a tax professional about your specific situation.
Lower your monthly payment. Since most mortgages have a long repayment term of 15 or 30 years, you could see your monthly student loan payment go down. Reducing your interest rate can also lower your monthly payment.

Cons

Risk foreclosure on your home. Student loan debt is unsecured, meaning your lenders can’t seize your assets if you default. (One exception is that the government can garnish your wages, tax refund, and Social Security benefits if you default on federal student loans). A mortgage is secured by your house, however. If you can’t pay it back, the bank can seize your home.
Lose access to federal student loan protections. Federal student loans are eligible for a variety of programs, including income-driven repayment, forbearance, deferment, and loan forgiveness programs. Rolling your student loans into your mortgage means losing access to all these plans.
Increase your interest costs. If combining your student loan debt with your mortgage means extending your repayment terms, you could end up paying more in interest over time, even with a reduced rate.
Have trouble qualifying. Only borrowers with good or excellent credit and a low debt-to-income ratio qualify for the best rates on home loans. Unless you have strong financial credentials, you might not benefit much from rolling student loans into your mortgage through a cash-out refinance or HELOC.

Deciding if This Is the Right Choice for You

Before deciding to tie your student loan debt into your home, make sure to consider all the pluses and minuses. It could be worth speaking with a financial advisor to see if this process would result in savings overall. You also need to think about how much equity you have in your home and what the current mortgage rates are. If a cash-out refinance would lead to a higher interest rate than you have on your mortgage now, it probably wouldn’t be worth it. It may also be worth considering home price trends in your area. If you increase the size of your mortgage and your home value drops, you could end up underwater and unable to sell your home when you want to. Think about whether you need access to federal programs and protections, too. If you want to use income-driven repayment, for instance, or work toward Public Service Loan Forgiveness, it would not make sense to fold your student debt into your mortgage.

Alternatives to Rolling Student Loans Into a Mortgage

Rolling your student loans into your mortgage has a number of risks and no guarantee of savings. Here are some alternatives to consider if you’re looking for strategies to manage your education debt.

Student Loan Refinancing

Refinancing your student loans with a bank, credit union, or online lender could lead to better interest rates and a reduced monthly payment. Refinancing involves exchanging one or more of your student loans for a new one with different terms. If you refinance multiple loans, you can consolidate them so you only have a single monthly payment. Depending on your credit, you may also reduce your interest rate, leading to savings on your student loans. Plus, you can select new repayment terms. A shorter term could help you get out of debt faster, while a longer term could reduce your monthly bills. If you’re looking to buy a home, pursuing student loan refinancing before buying a house could make sense if it helps you reduce your debt-to-income ratio.Similar to rolling federal student loans into a mortgage, however, there are both advantages and risks of student loan refinancing. Refinancing federal loans with a private lender means you can no longer access federal repayment plans and protections. Make sure you’re comfortable with this decision before refinancing federal student loans.

Student Loan Forgiveness

The government offers several student loan forgiveness programs for qualifying professionals, including Public Service Loan Forgiveness and Teacher Loan Forgiveness.If you meet the program’s requirements and make on-time payments on your student loans, you could get part or all of your education debt forgiven. Many states and even some employers also offer student loan repayment assistance. By seeking out these opportunities, you could get a significant portion of your student loan debt erased.

Income-Based Repayment Plans

Income-driven repayment plans are also an option for federal student loans. Plans such as Income-Based Repayment, Pay As You Earn, Revised Pay As You Earn, and Income-Contingent Repayment all adjust your monthly payments in accordance with your income and family size. These plans also extend your loan terms to 20 or 25 years, giving you more breathing room to pay back your debt. If you still have a balance after all this time, it could be forgiven. You can request an income-driven repayment plan at no charge on the Federal Student Aid website. When you apply, you can select a specific plan or request that your loan servicer choose the one that would result in the lowest monthly payment.

Refinance Your Student Loans With Lantern

If you’re interested in refinancing student loans for better rates, you can kick off the process by checking your rates with a few different lenders. Many lenders let you prequalify online with no impact on your credit score. Lantern can help you check your student loan refinancing rates so you can find your best offer.

3 Student Loan Refinancing Tips

Once the pandemic-related pause on federal student loan payments ends, going back to making payments may be hard on budgets. One solution is to refinance to a lower interest rate, longer loan term, or both, depending on your situation. (The tradeoff is that you’ll be forfeiting federal benefits such as repayment programs.) Find and compare your student loan refinance options.
Paying extra each month on your student loan can reduce the interest you pay and so lower your total loan cost over time. (The law prohibits prepayment penalties on federal or private student loans.)
If you teach full-time for five complete and consecutive academic years in a low-income school, you may be eligible for federal student loan forgiveness.

Frequently Asked Questions

Can student loans be included into a mortgage?

How are student loans factored into a mortgage?

Can student loans prevent you from qualifying for a mortgage?

Photo credit: iStock/AleksandarGeorgiev

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About the Author

Rebecca Safier

Rebecca Safier has nearly a decade of experience writing about personal finance. Formerly a senior writer with LendingTree and Student Loan Hero, she specializes in student loans, financial aid, and personal loans. She is certified as a student loan counselor with the National Association of Certified Credit Counselors (NACCC).

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