How to Use Your Home Equity to Pay Off Student Loans
- Refinancing student loans with home equity could lower your interest rate and your payments.
- With this kind of refinancing, you lose federal student loan protections like deferment and income-based repayment options.
- Extending repayment to 30 years could increase your total interest expense.
Table of Contents
- What Is a Home Equity Loan?
- How Can You Use a Home Equity Loan to Pay Off Student Debt or Pay for School?
- Advantages of Using a Home Equity Loan to Pay Off Student Loans or Pay for College
- Disadvantages of Using a Home Equity Loan to Pay Off Student Loans or Pay for College
- Understanding Variable vs. Fixed Interest Rates
- Direct Comparison Table: Student Loans vs. Home Equity Options
- Alternatives to Consider
- Is Using Home Equity to Pay for College or Pay Off Student Debt a Good Idea?
If student loan debt is costing you too much, it may be an option to pay off your student loans with a home equity loan.
If you’ve built up some equity, a home equity loan could be a relatively cheap and easy way to borrow. Under certain conditions, it might make sense to use it to pay off student loans.
Knowing how home equity works could help you figure out whether using it for student loans is worthwhile in your situation, and could help you choose from three methods.
What Is a Home Equity Loan?
A home equity loan is a mortgage. Instead of using the money to buy a home, however, you could use it for other purposes since you already own the property.
The equity in your home is the value of the property above what you still owe on your mortgage, or, in other words, market value minus outstanding debt. For example, if your home is worth $250,000 and you owe $200,000 on your mortgage, you have $50,000 in equity.
You build equity when your home’s value increases, and as you pay down your mortgage. Continuing with our example, let’s say you’ve made payments for a few more years and your mortgage balance is down to $180,000. At the same time, the home’s value has risen to $295,000. You now have $115,000 in equity.
Home equity loans are secured by your home. That collateral is a financial safety net for the lender. If you don’t repay the loan, you could lose your home, because the lender can sell it to recover what you owe.
That security gives home equity loans two big advantages—they're cheaper than most other borrowing options, and they’re relatively easy to get. Home equity loans typically have lower interest rates than other kinds of loans, and in some cases have more-flexible credit requirements.
How Can You Use a Home Equity Loan to Pay Off Student Debt or Pay for School?
If you have equity in your home, a home equity loan could be a source of funds to pay off student debt or to continue paying for your education.
Lenders typically don't let you borrow the full value of your home equity. For example, a lender might limit your combined total mortgage debt to 80% of what your home is worth (some lenders have higher limits).
With an 80% limit and a $295,000 home, the maximum you could owe on your home, between your mortgage and your home equity loan or HELOC, would be $236,000. If you still owe $180,000 on your mortgage, that means you could apply to borrow another $56,000.
If you have enough equity to borrow against, here are a few ways you could do it.
1. Cash-out refinance loan
A cash-out refinance means taking out a new mortgage for more than you currently owe. You use the loan proceeds to first pay off your existing mortgage loan, and then get the difference in cash. You could use the money you borrowed to pay for school or pay off student loan debt. This kills two birds with one stone. It allows you to:
Refinance what you owe on the home. That could make sense if you can get better terms on a new loan than you have on your existing loan.
Use the cash-out portion for other needs. One use could be to pay off student loans.
Cash-out refinancing means you aren't just changing the terms of your student loan debt, but also changing the terms of your current mortgage.
To decide whether this is a good idea, look at both decisions separately. Consider refinancing student loan debt if you can get better terms on a new loan. This could mean lower interest rates and/or lower monthly payments.
Even if you can improve on the terms of your student loan debt, it’s only worth it to use cash-out refinancing if you can also improve on the terms of your current mortgage.
For example, it probably wouldn't make sense to trade in a low-rate mortgage for a higher-rate mortgage just to refinance your student loan debt. In that case, it would be more cost-effective to leave your current mortgage in place, and take out a home equity loan to pay off your student loan debt.
2. Home equity loan
Home equity loans help you borrow without changing your current mortgage. That would make more sense than refinancing if the terms on your current mortgage are better than you could get on a new loan.
With a home equity loan, you get the full amount in one lump sum. You then immediately enter the repayment period, and pay off the loan in equal installments over a preset number of years.
A home equity loan could make sense if you want to use the money all at once. If your only goal is to pay off your student loan debt, this might be the right approach. However, if you also want the flexibility to borrow for future expenses, a HELOC may be more cost-effective.
3. Home equity line of credit
A home equity line of credit (HELOC) works like a credit card. You can borrow, repay, and borrow more, up to the credit limit, for the first few years of the loan. This is called the draw period. You don’t have to borrow the whole amount at once, and as you pay back what you’ve borrowed, you free up more available credit. That way, you could borrow again in the future.
When the draw period ends, you enter the repayment phase and can’t borrow more. At this point, you’ll make a principal and interest payment that’s calculated to fully pay off the debt by the end of the repayment period.
Using a HELOC instead of an ordinary home equity loan could be an advantage if you need money at different times rather than all at once. With a HELOC, you only pay interest on the amount you borrow.
A HELOC might make sense if you’re continuing your education, since you could use the HELOC to pay school bills as they come up.
Steps toward borrowing against home equity to pay off student loans
Given the different kinds of home equity options, here’s how to decide what's the best fit for you:
Figure out how much home equity you could borrow against. Look at recent sales of comparable homes in your area to estimate how much your home is worth. Subtract from that the amount you owe on your mortgage to get a rough idea of how much equity you have.
Check your credit report to see if you're in a good position to take out a loan. See if there are things in your credit record that should be fixed or improved before you apply for a loan.
Research current rates for cash-out refinance mortgages, home equity loans, and HELOCs.
Compare those rates with the rates on your mortgage and student loans.
Based on how the rates compare with those on your existing debt, decide whether you want to refinance your current mortgage, your student loans, or both.
Consider whether a fixed or variable rate loan makes sense for you.
Figure out what type of loan you want. This depends largely on whether you could save money by refinancing your existing mortgage, and whether you play to use the money all at once or at different times.
Compare lenders and get quotes on the type and amount of loan you need.
Work up a budget to see if you can afford the monthly payments on the loan.
Look at the total interest cost of the loan, along with any closing costs and other fees. Compare that to the total cost of paying off your current debt.
If everything checks out, apply for the loan that looks most attractive. The application process is likely to involve not just a check of your credit history, but also an inquiry into your current finances and an appraisal of your home.
Advantages of Using a Home Equity Loan to Pay Off Student Loans or Pay for College
There are some clear advantages to taking out a home equity loan to pay off student debt or pay for college.
1. You may be eligible for a lower interest rate
Unlike student loans, home mortgages and home equity loans are secured debt (they involve collateral). So you might get a lower interest rate on a home equity loan than your current student loan rate.
2. Stabilize payments by switching to a fixed loan
If you have a private student loan, it may have variable interest rates. If you want to make sure you can afford your future payments, you may want to refinance into a loan with fixed interest rates.
3. Arrange for credit when you need it
With a HELOC, you could pay off your student loan debt now, and also lock in access to credit for potential future needs. Instead of borrowing all at once, you could tap into your line of credit when you need it. That way you don't pay interest until you're ready to use the money.
4. Take care of multiple financial needs all at once
Paying off your student loan debt may be only one of your financial goals. You may also want to refinance your current mortgage, pay for a costly repair, or cover other expenses.
Depending on the situation, a cash-out refinance loan or a home equity loan could give you relatively low-cost access to credit for a variety of purposes.
5. You may be able to repay your loan over a longer time
Using a home equity loan to pay off student loans could give you as much as 30 years to pay the money back.
In contrast, the standard repayment period for a federal student loan is 10 years. Private student loan terms vary, but are generally less than 30 years.
Paying a loan back over a longer time could reduce your monthly payment. Because of interest, this usually means you pay more in total over the long run. But it could make a huge difference if you're struggling to make your monthly payments.
6. You could consolidate payments
Combining multiple student loans into one (and possibly paying off other debt) could simplify monthly bill-paying. Streamlining bill payment could help you keep track of your obligations so you don’t miss a payment.
Disadvantages of Using a Home Equity Loan to Pay Off Student Loans or Pay for College
Home equity loans may not make sense for paying off student loans in all situations. Consider these potential drawbacks so you can make the right decision for your situation.
1. You could lose borrower protections
With federal student loans, you have a variety of borrower protections, including forbearance and income-driven repayment plans. There are even conditions in which you could get a portion of your loan balance forgiven.
If you use home equity to pay off federal student loan debt, you lose these protections. Look into federal student loan debt relief options before you conclude that refinancing with a home equity loan is the best choice.
2. There may be upfront costs for a new loan
There are often application fees, closing costs, and other expenses when you initiate a new loan. Some lenders will roll these into the principal of the loan so you don't pay them all at once. Even so, they still add to your borrowing costs.
This means comparing the cost of a new loan with your current debt involves more than just comparing interest rates or monthly payments. You have to include all costs associated with getting the new loan in your cost comparison.
3. Interest on home equity debt isn’t always deductible
Some student loan interest is tax-deductible, and some home equity loan interest is deductible. But home equity loan / HELOC interest is generally only deductible if you use the money to build or improve the home you borrowed against. If you use home equity to pay off student loan debt, you might not be able to deduct the interest. Talk to a qualified tax professional about your situation before you make a decision.
4. The loan is secured by your home
Home equity loans and refinance mortgages are relatively cheap and easy to get because they use your home as collateral—of course, that also means you have to be confident you can repay the loan.
Before you commit to a home equity loan, take a detailed look at how the payments would fit into your budget. Think about any future expenses you know are coming up. Don’t put your house on the line unless you’re confident you can make the payments.
If you’re struggling to make ends meet and aren’t sure you can make the payments on a home equity loan, there are other alternatives. Debt counseling or debt relief options might lead you to other solutions.
5. You may restrict future financial flexibility
Equity in your home is a valuable resource. Consider carefully how you want to use it. Borrowing against your home equity to pay off a student loan reduces the remaining equity in the home. This limits your ability to borrow against it for other purposes until you’ve built the equity back up.
If the value of your home drops, having a home equity loan outstanding might even restrict your ability to sell or refinance the home.
6. The availability of home equity depends on market conditions
Just because you've been paying off your mortgage for a while, that doesn't necessarily mean you have enough equity to borrow against. Although real estate prices generally move higher over time, they also move down in some cases.
Declines in the market value of your property could wipe out the equity in the home. Remember too, that lenders aren't likely to allow you to borrow the full value of that equity. They usually require you to leave a cushion to protect against future price changes.
7. The potential for balloon payments requires careful planning
If you get a HELOC, it may require repayment of the full remaining balance after the draw period ends. In contrast to smaller monthly payments over time, this type of balloon payment can be a shock to any budget. Before signing up for a loan, be completely familiar with the payment schedule. Plan ahead for any balloon payments by saving up for them.
8. Variable rate loans can make debt riskier
Be especially careful if you're thinking about refinancing from a fixed-rate to a variable-rate loan. Doing so could make your payments unpredictable. Make sure you have a full understanding of the difference between these loan types.
Understanding Variable vs. Fixed Interest Rates
When considering refinancing options for your student loan debt, you may be able to choose a fixed or variable interest rate:
A fixed interest rate is set when the loan is made, and stays the same throughout the repayment period.
A variable interest rate changes according to market conditions—it may rise when rates generally are rising, and fall when rates generally are falling.
It's important to know whether the current loan you're refinancing has fixed or variable rates, as well as what type of rate structure your new loan would have. The difference affects both the cost of the loan and the risk to the borrower.
Fixed-rate loans
If a loan has a fixed interest rate, the cost and the monthly payments are totally predictable. You know when you sign up for the loan how much you'll pay every month, and what the total interest cost will be over the life of the loan.
The predictable nature of fixed rate loans makes it easier to plan ahead. Before you sign up for a fixed-rate loan, you can figure out how well the payments fit into your budget.
Variable-rate loans
A loan with variable rates could work for you or against you, and it’s not always easy to predict which way it will go. If interest rates rise, your payments could get more expensive. If rates fall, your payments could get cheaper.
If you take out a loan when interest rates are generally high, a variable rate loan lets you avoid locking into a high rate for the life of the loan. However, interest rate changes are very hard to predict.
The big risk of a variable rate loan is that your payments may become unaffordable. If rates rise after the loan begins, you pay more than you originally signed up for. This not only increases your monthly payments, but also the total interest cost you pay over the life of the loan.
Direct Comparison Table: Student Loans vs. Home Equity Options
Deciding whether to use home equity to pay off your student loan requires looking at the costs, risks, and benefits. The table below summarizes the major points discussed in this article. This should help you compare the strengths and weaknesses of these loan types.
| Student loans | Cash-out refinance | Home equity loan | HELOC | |
|---|---|---|---|---|
| Secured by property | No | Yes | Yes | Yes |
| Relatively low interest rates | Usually | Yes | Yes | Yes |
| Fixed or variable interest rates | Usually fixed | Usually fixed | Usually fixed | Usually variable |
| Line of credit for future borrowing | No | No | No | Yes |
| Can also use for other expenses | No | Yes | Yes | Yes |
| Balloon payment | No | Typically no | No | Possibly |
| Impact on current mortgage | None | Resets the terms for your current mortgage balance | None | None |
Alternatives to Consider
If you're struggling with your student loan debt, there are alternatives to refinancing it with home equity. They include:
Federal student loan refinancing. You may be able to refinance student loan debt into a federally-sponsored Direct Consolidation Loan. However, opportunities to lower your interest rate by refinancing a federal student loan are relatively rare, because they already have low interest rates. However, a sharp drop in interest rates may occasionally provide an opportunity.
Income-driven repayment plans. The federal government also offers student loan borrowers income-driven repayment plans. These adjust your monthly payments according to your income. That could make your payments more affordable without having to refinance.
Debt settlement. In some cases, if you're genuinely unable to pay all your debts, you can negotiate with your creditors to accept less than the full amount you owe. You could also hire a professional debt relief firm to negotiate on your behalf. Debt settlement is best suited to unsecured debts, and is not available for federal student loans. However, if you settle other debts, it may free up enough money to help you afford your student loan payments.
Is Using Home Equity to Pay for College or Pay Off Student Debt a Good Idea?
Let’s put it this way: Using home equity to pay off student loan debt is a good option to consider. Whether it’s the right choice depends on your situation.
Here's a checklist of things to consider before making this decision:
How your monthly payments would be affected by refinancing
How confident you are in being able to make those monthly payments along with your other expenses
How refinancing would affect the total you pay over the life of the loan
Whether you plan on moving before the end of the loan term
Whether other major financial needs are likely to arise before the loan is paid off
How you might benefit from the protections offered on federal student loans
Whether your finances need a more comprehensive solution, like debt counseling or debt settlement
Here are a couple of examples of when it might make sense to use home equity to pay off student loans:
You have a $15,000 private student loan at 12% with 10 years left to pay. Since taking out that loan, you've built up $100,000 in home equity. Your mortgage is at 3%, so you don't want to refinance that. However, you find that you can get a 10-year home equity loan at 8%. So, you could take out a $15,000 home equity loan and effectively lower the interest rate on your student loan debt from 12% to 8%. Even assuming 1% in loan origination costs, this move would make sense.
You owe $320,000 on a 15-year mortgage at a 7% interest rate. You also have $30,000 in student loan debt with an 8% interest rate and 10 years left to pay. Even though you bought your house just a couple of years ago, its value has risen from $400,000 to $450,000. That gives you about $130,000 in equity.
You find that 15-year mortgage rates have dropped to 5%. So you could lower the interest rate on both your mortgage and your student loan debt. Using a loan calculator, you compare your current costs with the cost of refinancing your mortgage and your student loan debt with a $350,000 cash-out refinance loan. Here's what you find:
| Mortgage | Student Loan | |
|---|---|---|
| Monthly payment now | $3,130 | $364 |
| Monthly payment after refinancing | $2,531 | $237 |
| Savings on monthly payment by refinancing | $599 | $127 |
| Total interest until debt is paid off now | $168,255 | $13,678 |
| Total interest after refinancing | $135,497 | $12,703 |
| Loan origination fee | $3,200 | $300 |
| Total of interest plus origination costs after refinancing | $138,697 | $13,003 |
| Total cost savings by refinancing | $29,558 | $675 |
In this case, cash-out refinancing is a clear win. You could reduce the monthly payment and total remaining cost on both your mortgage and your student loan.
But every situation is different. The above are just a couple of examples to show what you should evaluate when considering using home equity to pay off student loan debt. If you don't feel comfortable making this decision, a professional financial planner or debt counselor may be able to help.
A good decision is one you make after thinking through all the outcomes and alternatives. The checklist and thought process described above can help you feel confident that using home equity to pay off student loan debt is the right decision.
A look into the world of debt relief seekers
We looked at a sample of data from Freedom Debt Relief of people seeking the best debt relief company for them during September 2025. This data highlights the wide range of individuals turning to debt relief.
Age distribution of debt relief seekers
Debt affects people of all ages, but some age groups are more likely to seek help than others. In September 2025, the average age of people seeking debt relief was 53. The data showed that 25% were over 65, and 15% were between 26-35. Financial hardships can affect anyone, no matter their age, and you can never be too young or too old to seek help.
Credit card debt - average debt by selected states.
According to the 2023 Federal Reserve Survey of Consumer Finances (SCF) the average credit card debt for those with a balance was $6,021. The percentage of families with credit card debt was 45%. (Note: It used 2022 data).
Unsurprisingly, the level of credit card debt among those seeking debt relief was much higher. According to September 2025 data, 88% of the debt relief seekers had a credit card balance. The average credit card balance was $16,189.
Here's a quick look at the top five states based on average credit card balance.
| State | Average credit card balance | Average # of open credit card tradelines | Average credit limit | Average Credit Utilization |
|---|---|---|---|---|
| Alaska | $21,224 | 7 | $24,102 | 77% |
| Louisiana | $14,183 | 9 | $28,791 | 77% |
| Oklahoma | $14,132 | 9 | $27,261 | 77% |
| District of Columbia | $18,088 | 8 | $25,731 | 76% |
| Ohio | $15,248 | 8 | $26,156 | 75% |
The statistics are based on all debt relief seekers with a credit card balance over $0.
Are you starting to navigate your finances? Or planning for your retirement? These insights can help you make informed choices. They can help you work toward financial stability and security.
Tackle Financial Challenges
Don’t let debt overwhelm you. Learn more about debt relief options. They can help you tackle your financial challenges. This is true whether you have high credit card balances or many tradelines. Start your path to recovery with the first step.
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Written by
Richard Barrington
Richard Barrington has over 20 years of experience in the investment management business and has been a financial writer for 15 years. Barrington has appeared on Fox Business News and NPR, and has been quoted by the Wall Street Journal, the New York Times, USA Today, CNBC and many other publications. Prior to beginning his investment career Barrington graduated magna cum laude from St. John Fisher College with a BA in Communications in 1983. In 1991, he earned the Chartered Financial Analyst (CFA) designation from the Association of Investment Management and Research (now the "CFA Institute").
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Kimberly Rotter
Kimberly Rotter is a financial counselor and consumer credit expert who helps people with average or low incomes discover how to create wealth and opportunities. She’s a veteran writer and editor who has spent more than 30 years creating thousands of hours of educational content in every possible format.
How should I choose between a home equity loan or a HELOC?
The answer depends on whether you plan to use the money all at once. If so, a home equity loan is likely to be the better option. If you expect a series of expenses over time, a HELOC may be better because you won’t pay interest until you need the money.
If you’re done with school and want to refinance your student loan debt all at once, a home equity loan might be appropriate. However, if you’re continuing your education and want to refinance the student loan debt you already have and then meet upcoming tuition costs, a HELOC could give you that flexibility.
Are home equity interest rates lower than student loan rates?
Home equity loans and student loan rates have one thing in common: they both have relatively low interest rates. In fact, the low rates on student loans can make it tough to find a cost-effective way to refinance. However, market conditions change and fluctuating rates can create refinancing opportunities.
Also note that student loan rates for graduate school are higher than for undergraduate programs, which may make a home equity loan a cheaper alternative. In addition, there may be other reasons to refinance, such as the need to lower monthly payments.
Can I use a home equity loan to consolidate other debt along with my student loan debt?
Definitely. In fact, since most forms of consumer debt have higher rates than student loan debt, your other debts might be even better candidates for refinancing. Just make sure that the payments on the refinance loan would be manageable before you put up your home as collateral.
Can I use a home equity loan to consolidate other debt along with my student loan debt?
Definitely. In fact, since most forms of debt have higher rates than student loan debt, your other debts might be even better candidates for refinancing. Just make sure the payments on the refinance loan are manageable before you put your home up as collateral.
What's the difference between a draw period and a repayment phase on a HELOC?
The draw period is the time when the line of credit is open for you to tap into. You can borrow up to the limit on that line of credit at any time during this period. You build that line of credit back up by repaying some or all of what you borrowed previously.
The repayment phase is when you're required to start paying off any remaining balance owed on your HELOC.
Will having student loan debt make it harder to qualify for a home equity loan?
You should make it clear that you intend to use the home equity loan to pay off student loan debt. That means it won't increase the amount of debt you have.
The other issue may be your history of making payments on your student loan. If you've consistently made your payments on time, that history should help you get a home equity loan. However, if you've missed some payments, it may count against you.
Will paying off student loans with home equity impact my taxes?
Up to $2,500 a year in student loan interest is federally tax-deductible. While mortgage interest is deductible up to certain limits, home equity loans and the cash-out portion of cash-out refinance loans are not deductible unless used to repair or otherwise improve the home.
So, if you've been able to use the student loan interest deduction, paying off student loan debt with home equity may mean losing this deduction. Note that tax laws are subject to change, so check current tax laws or consult a tax expert at the time you're considering this decision.
Can I use a HELOC to pay for future education expenses?
Yes. One of the advantages of a HELOC is that the line of credit is available during the draw period for you to use as you see fit. That includes tapping into it to pay for additional education expenses.
