Paying off student loans with a HELOC
The answer depends almost entirely on whether your loans are federal or private.
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Should you pay off student loans with a HELOC?
Usually not for federal student loans: moving them to a HELOC gives up income-driven repayment, deferment, forbearance and any forgiveness, and puts your home on the line. For private loans at high rates, possibly. On $40,000 at 11% over 10 years, a HELOC at 7.75% APR saves about $8,500 in interest.
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Why federal loans should usually stay put
- Payments can be tied to income and paused in hardship. A HELOC payment can't.
- Federal loans are discharged at death or total and permanent disability. A HELOC passes to your estate.
- Public Service Loan Forgiveness and other forgiveness programs only apply to federal loans.
Use a free calculator, or get your HELOC rate from Shawn.
Private loans: the math
| $40,000, 10 years | Monthly | Interest |
|---|---|---|
| Private loan at 11% | $551 | $26,120 |
| HELOC at 7.75% APR | $480 | $17,605 |
Compare against refinancing the private loan with another student lender too. That keeps your home out of it, and good-credit borrowers sometimes get rates close to a HELOC's.
The private loan example
| Private loan at 11% | HELOC at 7.75% APR | |
|---|---|---|
| Balance | $40,000 | $40,000 |
| Payoff period | 10 years | 10 years |
| Monthly payment | $551 | $480 |
| Total interest | $26,120 | $17,600 |
What you'd give up on federal loans
- Income-driven repayment, which ties payments to income and can drop them to $0 if income falls.
- Deferment and forbearance during unemployment, economic hardship or some military service.
- Forgiveness programs, including Public Service Loan Forgiveness for government and nonprofit employees.
- Discharge on death or total and permanent disability. A HELOC doesn't go away; it's a claim against your home and estate.
Those protections are worth a lot when life goes sideways. Moving a federal loan to a HELOC trades them for a lower rate, which is rarely a good trade.
Compare a student loan refinance first
For private loans, a student loan refinance from another private lender also lowers the rate, doesn't involve your house, and sometimes offers short hardship forbearance. If a refinance gets you within about a point of the HELOC rate, it's usually the safer choice. A HELOC makes most sense when your credit has improved but your income or loan size keeps refinance offers high, or when a parent with equity is helping.
If a parent cosigned
Paying off a cosigned private loan with the borrower's own HELOC releases the cosigner. If a parent uses their HELOC to pay off a child's loan, the debt becomes the parent's, secured by the parent's home. Put any repayment arrangement between you in writing. Using a HELOC to help family.
Questions people ask
Is HELOC interest on student loans deductible?
No. Student loan interest has its own deduction, which you lose when you move the balance to a HELOC.
Should you pay off Parent PLUS loans with a HELOC?
Usually not without weighing what you'd lose. Parent PLUS loans are federal, with income-contingent repayment after consolidation and discharge at death or disability, protections a HELOC doesn't offer. Weigh those before moving them.
Before moving any student loan
- Confirm whether each loan is federal or private at StudentAid.gov.
- Check eligibility for forgiveness or income-driven plans.
- Price a private student loan refinance for comparison.
- Choose a HELOC payoff no longer than the student loan's remaining term.
- Consider who's liable: a parent's HELOC makes the debt the parent's.
Example: a parent's private loan
A parent cosigned a $35,000 private loan at 12%. With a HELOC at 7.75% APR and a 7-year payoff, the parent's payment drops by about $80 a month and total interest by roughly $6,400, and the child is released as a borrower on that loan.
Also asked
Can I still deduct student loan interest after moving it to a HELOC?
No. Student loan interest is deductible only on qualified student loans; HELOC interest used to pay them isn't deductible.
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Sources
Official sources behind this guide.
- What is the difference between a home equity loan and a HELOC? · Consumer Financial Protection Bureau
- What you should know about home equity lines of credit (booklet, PDF) · Consumer Financial Protection Bureau
- Publication 936, Home Mortgage Interest Deduction · Internal Revenue Service
- Find a HUD-approved housing counselor · Consumer Financial Protection Bureau