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If you’re thinking about buying a car, it’s important to consider how the purchase will fit into your overall financial responsibilities, including student debt. You’ll want to be sure you can afford both the cost of the car and the ongoing expense of driving and maintaining it.

Refinancing student loans to buy a car is one option that may allow you to free up money to put toward the cost of a car or monthly car payments. Here’s what to know about refinancing student loans to buy a car, if you can use student loans to buy a car, and how to make the choice that’s right for you.

Can I Use Student Loans to Buy a Car?

Federal student loans (and many private ones) are for “qualified” educational expenses, such as tuition, room and board, and books and supplies. And while the cost of transportation (for example, commuting to school) is considered a qualified expense, purchasing a car is not.

So can you use student loans to buy a car if you’re using the car to drive to class? No – only an allowance for the cost of driving the car to school would be an eligible expense. It’s an important distinction: A borrower caught misusing student loan funds can face serious repercussions, including having their loan revoked and the balance becoming immediately due.

Some private loans may have broader criteria for what constitutes an educational expense, and fewer penalties for how you use the loans. Still, using a private student loan to buy a car may not be the most efficient or smartest use of funds. You may end up paying more interest than you would on a typical car loan, and then have fewer funds to go toward the educational expenses you need.

So what do you do if you have student debt and need to buy a car? Refinancing may be an option, and can free up money in your budget to open a car loan. Here’s what to consider before refinancing student loans to buy a car.

Recommended: Should I Buy a New or Used Car?

Refinancing Student Loans to Buy a Car

When you refinance a student loan, you pay off all or some of your loans with a new loan with new terms from a private lender. The primary benefit of refinancing is that you can save money over the life of the loan if you’re able to lower your interest rate.

You can also change the terms of your payment, potentially spreading your payment over a longer period of time, and paying less each month. If you go this route, however, you may end up paying more in interest over the life of your loan.

Refinancing student loans can help lower your monthly payments and have more room in your budget to cover the costs of a car. However, it’s important to understand that if you refinance federal student loans, you’ll lose access to federal benefits and protections, such as income-driven repayment plans and forgiveness. If you’re planning to take advantage of any of these federal programs, refinancing is likely not a good option for you.

Pros of Refinancing Student Loans to Buy a Car

Considering the pros and cons of refinancing student loans to buy a car can help you decide if this choice is right for you. You’ll want to be able to cover the costs of the car as you continue to pay your student loans back. Some of the pros of refinancing a student loan to buy a car include:

Lower Monthly Student Loan Payments Can Offset Car Costs

Refinancing your student loans can lower your monthly student loan payment if you’re able to secure a lower interest rate or extend your loan term. A lower monthly student loan payment can mean that you have more funds to cover the costs of buying or maintaining a new car.

Recommended: Guide to Student Loan Refunds

As mentioned, lowering your interest rate can save you money over the life of a loan. Extending your loan term may not save you money, but it can free up cash to have more funds to put toward the costs of a car.

Simplified Payments Can Make Tracking Car Expenses Easier

When you refinance multiple loans into a single new loan, you’ll have one new monthly payment. This can make it easier to keep track of your student loan payments and be sure you’re making them on time.

And if you’re looking for ways to get a car loan, having a simplified student loan payment can make budgeting easier as you add a new loan to the mix. As mentioned earlier, you may find lower interest rates on car loans than what you’re paying on your student loans — another reason using student loans funds toward car expenses may not be the best choice even if they’re allowed according to your loan terms.

Saving Money on Student Loans Can Help Pay for a Car

Many people explore refinancing even when they don’t need to make an immediate purchase like a car. That’s because refinancing may help save money over the life of the loan if you can lower your interest rate.

And while applying for student loans can be arduous, applying to refinance student loans is relatively straightforward. You can check your rate and get an estimate of loan terms before you officially apply, and an application can generally be completed online. You can also compare refinancing rates without triggering a hard credit check—a credit check is only done once a formal loan application is submitted.

Cons of Refinancing Student Loans to Buy a Car

While refinancing student loans to buy a car can be one way to cover car payments when you have existing student debt, there are cons to this option as well. Here are some of the cons of refinancing a student loan to buy a car.

Recommended: How To Save Up For a Car

Losing Access to Original Loan Terms

If you refinance your loans, you lose access to the terms of the original loan. This may be important to consider if you’re refinancing federal loans.

Refinancing federal loans not only means potentially missing out on federal forgiveness or repayment programs, but also the opportunity for deferment or forbearance if you qualify.

As mentioned earlier, if you plan to take advantage of federal programs, refinancing is likely not a good option for you. Some people may choose only to refinance private loans.

Repayment May Take Longer

If you extend the length of your student loan term when you refinance to lower your monthly payments to offset the costs of a new car, it will take longer to repay your loan and you may end up paying more in interest over the life of the loan.

Overstretching Your Budget

It’s important to make sure that you can afford any car loan that you take out. If you’re planning on getting a car loan or leasing a car, will you be able to comfortably cover your student loans, the car payment, and other bills? What would happen if you were to lose a job or source of income? Those questions can help you assess whether a car payment would stretch you financially.

A borrower who can’t make the payments risks having the car repossessed and damaging their credit. If you ever think you’ll miss a monthly car payment, reach out to your lender to find out what your options are. Down the road, refinancing your car loan is also an option if you’re able to secure better terms.

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Refinancing Your Student Loans With SoFi

When you need a new car, you may need to rethink your finances in order to cover the costs. Refinancing student loans to buy a car is one option that can help you free up funds. You may be able to lower your monthly payments and save money over the life of the loan if you qualify for a lower interest rate. You can calculate your potential savings using a student loan refinance calculator.

Refinancing can be a good option if you’re able to qualify for a lower interest rate and are not planning to use any federal programs. When you refinance a federal loan, you lose access to federal benefits and protections.

If you’re considering refinancing your student loans, SoFi offers flexible terms, competitive rates, and no fees.

Learn more about whether refinancing student loans with SoFi is right for you.

FAQ

Do car dealerships look at student loans?

Your student loans appear on your credit report. If you apply for a car loan from a dealership, then they may be able to see your payment history and your credit score on your credit report. Student loans also count toward your debt-to-income ratio which may affect your ability to secure a car loan.

Does financing a car affect student loans?

Financing a car won’t affect your current student loans, but consider how taking on another loan will impact your finances. It’s important to be certain that you’ll be able to pay both your student loan payments and any new car loan payments on time. Refinancing a student loan can help offset the costs of a new car if you can save money by qualifying for a lower interest rate. It can be a good option if you’re refinancing private loans or not planning to take advantage of any federal programs.

Is it smart to buy a car after college?

Buying a car after college is a personal decision. But keep in mind that a lot can change in a few years, and a new car or a lease may be a liability if your plans change. It may make sense to consider buying a used car or holding off on buying a car until you have a sense of what your commute and lifestyle will look like.

Photo credit: iStock/LeoPatrizi

SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.

Wondering what to do about your undergraduate school loans before starting graduate school? There are several options to consider, including deferment and refinancing college student loans.

Some grad students defer loan repayment while enrolled in school or refinance college student loans before starting a graduate program. As with your undergraduate student loans, the right choice for you will depend on a range of factors, such as whether you have federal or private student loans as well as how you plan to pay for grad school. Here’s an overview of the pros and cons of graduate school loan refinancing.

Grad School Student Loans

Before considering whether you should refinance your college student loans, it may be helpful to consider how you’ll be paying for graduate school. The average cost of public, in-state tuition for graduate school was $12,410 for the academic year 2019-2020, according to the National Center for Education Statistics. For a private institution, that number more than doubles to $26,597. In fact, graduate student loans account for 40 percent of federal student loans, according to The Center for American Progress.

You may be eligible for various types of student financial aid, including federal loans and private student loans. You’ll likely want to start by pursuing options such as grants (federal or private) that don’t need to be repaid, work-study programs, and federal loans.

Federal loans offer some benefits and protections, such as fixed interest rates, income-driven repayment plans, and access to forgiveness programs. As a grad student, you can apply for a Direct Unsubsidized Loan and Direct Grad PLUS Loan. (Direct Subsidized Loans are only an option for undergrads.) If federal options don’t cover what you’ll need to pay for grad school, private loans may be an option. Here are the most common grad school student loans.

Recommended: How Do Student Loans Work?

Direct Unsubsidized Loans

With federal Direct Unsubsidized Loans, students enrolled at least part-time can access financing at a fixed interest rate. Unlike Direct Subsidized Loans, the government doesn’t pay for accrued interest while you’re in school, during the loan’s grace period, or if a loan is in deferment. This means you’re responsible for repaying all interest charges that incur.

Although you can choose not to pay interest while you’re in school and during periods of deferment, the accumulated interest will capitalize. Capitalized interest means the unpaid interest charges are added to your principal balance, so that when you start making student loan payments, you’ll pay interest on a larger balance.

Your school will determine how much in Direct Unsubsidized Loans you can borrow each academic year, up to the maximum of $20,500. (Students enrolled in certain health profession programs may be eligible for additional loan amounts.) Any existing undergraduate federal loans you have will count toward the $138,500 aggregate federal loan limit for grad students and may affect the amount you’re able to borrow.

Direct Grad PLUS Loans

Graduate and professional students enrolled at least half-time can also look into federal fixed-rate Direct Grad PLUS Loans if they need more funding. Direct PLUS Loans are the only federal loan program that require a credit check.

Like Direct Unsubsidized Loans, you’re fully responsible for all interest charges that accrue. You also have the option to let interest charges capitalize on the account if you choose not to make interest payments while you’re in school or during deferment.

The maximum you can borrow through a Direct Grad PLUS Loan is the cost of attendance minus any existing financial aid you’ve received.

Private Student Loans

Private student loans offer non-federal funding from a private institution, like a bank, online lender, college, or credit union.

Private student loans can come with fixed or variable interest rates, and eligibility criteria and terms differ between lenders. Graduate students who’ve built a positive credit history might qualify for more competitive rates. Students with adverse credit — or those applying to grad school who haven’t graduated college yet — might require the help of a cosigner to qualify.

If you’re considering a private student loan, always compare multiple offers from different lenders to find the lowest rate for you.

Do You Have to Pay Undergraduate Loans While in Graduate School?

If you have federal student loans and you’re enrolled at least half-time at an eligible school, you can opt to defer payment on your loans while you’re in graduate school.

In-school deferment for a federal loan is typically automatic after your school reports your enrollment status. Expect to receive a notice from your loan servicer that your loans are in deferment. If your loans aren’t automatically placed on deferment, ask your school to report your enrollment status.

Keep in mind that if you defer federal loan payments while you’re in school, interest on deferred Direct Unsubsidized Loans from your undergrad years will continue to accrue and capitalize. You also won’t make any progress toward loan forgiveness, if you plan on participating in programs like Public Service Loan Forgiveness.

Choosing when to pay back student loans and whether to take advantage of federal loan deferment is a personal decision that depends on your individual financial situation.

If you borrowed private student loans while pursuing your undergraduate degree, you’ll need to contact your lenders about your options. Not all private lenders offer in-school deferment and eligibility may vary.

Recommended: Examining How Student Loan Deferment Works

Should I Refinance Before Grad School?

If you only have federal Direct Subsidized Loans, you don’t need to make payments while in school and, since interest doesn’t accrue, it won’t make sense to refinance. If you have Direct Unsubsidized or private student loans, however, refinancing college student loans might help lower your monthly obligation by extending your loan term or lowering your interest rate.

Keep in mind if you refinance a federal loan with a private lender, you’ll lose access to federal protections and benefits. And extending your term may mean that when you start making payments, you may pay more interest over the life of the loan and will be in debt longer. To find the choice that’s right for you, it’s helpful to look at the pros and cons of graduate school loan refinancing.

Refinancing College Student Loans, Explained

A student loan refinance lets you put one or multiple student loans, federal and/or private, into a new loan — ideally, with a lower interest rate. This loan is provided by a private lender, and it will pay off your original student loans in full. In turn, you’ll repay the lender under the new refinance loan which can be at a fixed or variable rate, as well as a different repayment term. As mentioned earlier, if you refinance a federal loan with a private lender, it will no longer be eligible for federal benefits and protections.

If your goal is to reduce the monthly loan payments for private and/or unsubsidized loans while you’re in grad school, for example, you might consider extending your term to make smaller payments over time.

Pros of Refinancing Before Grad School

Refinancing is a repayment strategy that offers some advantages.

Lets You Change Your Loan Term

When you refinance, you can change the specific repayment terms of your original undergraduate loan — electing, for example, a 10-year term instead of a five-year one (again, this may result in your paying more interest over the life of the loan.)

Allows for a Reallocation of Your Monthly Budget

A longer term reduces your monthly payment amount. As a grad student, freeing up money upfront can help pay for graduate school expenses, like textbooks, lab equipment, and fees.

Simplifies Repayment for Two or More Undergraduate Loans

Student loan refinancing helps simplify your repayment experience. Instead of managing payment amounts and due dates for multiple undergraduate loans, a student loan refinance results in one monthly payment and one due date to remember.

Cons of Refinancing Before Grad School

Although there are advantages to refinancing college student loans, there are downsides, too.

You may pay More Interest Over Time

Again, an extended repayment term may result in paying more interest over time, and paying more toward your education loan overall. It also prolongs the amount of time you’ll be in debt.

You’ll Lose Access to Federal Loan Forgiveness

Refinanced federal student loans won’t be eligible for forgiveness or other current or future federal loan benefits. This applies to all refinanced student loans, regardless of whether they originated as a federal loan.

Recommended: Can Refinanced Student Loans Still Be Forgiven?

Some Refinance Lenders Don’t Offer Academic Deferment

If you originally had federal loans from your undergrad, you’ll no longer receive automatic in-school deferment after refinancing. Although some lenders, like SoFi, offer eligible members in-school deferment, not all lenders do. This means you might be required to continue refinance payments while you’re studying for your grad program.

Refinancing Student Loans With SoFi

If you’ve decided to refinance your student loans, comparing a few different lenders can help you find the right fit for your needs. SoFi’s student loan refinancing offers flexible terms, no fees, no prepayment penalties — and you can view your rate in 2 minutes.

FAQ

Can you refinance student loans before graduation?

Yes, you can technically apply for a student loan refinance at any time. But proceed with caution when refinancing federal loans. Doing so removes you from the federal loan system and you’ll lose access to income-driven repayment plans, loan forgiveness, and other federal loan benefits and protections. Also, for Direct Unsubsidized loans, there is a six-month grace period after graduation, when payments aren’t due yet.

If I go to grad school, can I defer my loans?

Yes, you can defer federal student loans as long as you’re enrolled at least half-time in grad school. However, if your federal student loans aren’t Direct Subsidized, the interest may still accrue.

Do undergraduate loans affect grad school student loans?

Yes, for federal loans, undergraduate loans count toward the $138,500 aggregated loan limit that graduate students are allowed to borrow. Your available federal loan funds toward grad school might be limited, based on how much you borrowed as an undergraduate student.

SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.

Photo credit: iStock/kali9
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Once a year, usually in June, the government announces interest rates for federal student loans that will be first disbursed after July 1. Whether you’re a freshman or, say, a junior, these rates apply to the loans you get for the academic year that starts in the fall.

Federal student loan interest rates are determined differently than private student loan interest rates. Here’s what you should know about federal and private student loan interest rates in 2022 and 2023.

Federal Student Loan Interest Rates for 2022

As just noted, interest rates on federal student loans for the upcoming academic year are set by the government. By federal law, they’re based on the 10-year Treasury note auction in May. The rates set for the 2022 to 2023 school year are for loans first disbursed from July 1, 2022 to June 30, 2023.

For the 2024-2025 school year, the federal student loan interest rate is 6.53% for undergraduates, 8.08% for graduate and professional students, and 9.08% for parents. The interest rates, which are fixed for the life of the loan, are set annually by Congress.

How Federal Student Loan Interest Rates Work

Interest rates on federal student loans are fixed for the life of the loan. That means that if you borrowed a Direct Subsidized Loan for the 2020 – 2021 school year, and your interest rate was 2.75%, that interest rate is locked in at 2.75% for the life of that loan.

But, if you borrowed another Direct Subsidized Loan to pay for the 2021 – 2022 school year, your new loan will be disbursed with the 3.73% interest rate offered during that school year.

Since 2006, interest rates on federal student loans have fluctuated from anywhere between 2.75 to 8.50%, depending on the type of loan.

Difference Between Federal and Private Student Loan Interest Rates

Unlike federal student loans, interest rates for private student loans are set based on economic factors and underwriting unique to each lender that issues them. Lenders typically take into account a borrower’s credit history, earning potential, and other personal financial factors.

If you borrowed a private student loan, you may have applied with a cosigner to secure a more competitive interest rate. That’s likely because most college students don’t have much credit history or employment history, so interest rates on private student loans can be higher than those on federal student loans without a well-qualified cosigner.

While federal student loans have a fixed-interest rate, private student loans can have either a fixed or variable interest rate. Borrowing a variable rate loan means that the interest rate can change periodically.

How Private Student Loan Interest Rates Work

The frequency of changes in the interest rate will depend on the terms of the loan and on market factors; typically, private lenders adjust the interest on variable-rate loans monthly, quarterly, or annually. Interest rates on private student loans are typically tied to the London Interbank Offered Rate (LIBOR) or the 10-year Treasury yield.

So as the LIBOR changes, for example, interest rates on variable-rate student loans can change as well. Typically, lenders will add a margin to the LIBOR, which is determined based on credit score (and, the credit score of your co-signer if applicable).

Generally, the LIBOR tracks the federal funds rate closely. In June 2020, the Federal Reserve announced that it plans to keep the federal funds rate close to zero, likely through 2022.

This means that, so long as the federal funds rate remains low, the interest rates on private student loans are not likely to increase during that time period. However, it’s important to pay attention to interest rates, especially for borrowers with private student loans with a variable-interest rate, since these changes could cause fluctuations to the interest rate of the loan.

And given that LIBOR is scheduled to be discontinued around the end of 2021 , rates could change in other ways as new indices are chosen by lenders.

Lowering the Interest Rate on a Private Variable-Rate Loan

If you have a private variable-rate loan and are worried about interest-rate volatility, there are options available to protect against an interest-rate hike. One option is switching to a fixed-rate loan via student loan refinancing.

When you refinance your student loans, you take out a new loan (typically with a new lender).

The new loan effectively pays off your existing loans, and gives you a new loan with new terms, including a new interest rate. Private lenders, like SoFi, review personal financial factors like your credit and employment history, among other factors, to determine a new interest rate.

If you qualify to refinance, you’re then able to choose between a fixed or variable rate loan, so if you’re worried about rising interest rates in the future, you may have a chance to qualify to lock in a new (hopefully lower) fixed interest rate.

Monthly Payments and Private Loans

You should also have the opportunity to set a new repayment plan, either extending or shortening the term of the loan. If you extend your student loan repayment term, you’ll likely have lower monthly payments, but will pay more in interest over the life of the loan.

Shortening your repayment plan typically has the opposite effect. You may owe more each month, but will most likely spend less on interest over the life of the loan.

To get a general idea of how much refinancing your student loans could impact your repayment, take a look at SoFi’s student loan refinance calculator, where you can compare your current loan to current SoFi refinance student loan rates.

Refinancing Federal Student Loans

Federal student loans can be refinanced, too. Typically, a student wouldn’t do this while still in school, since the government is paying the interest on certain federal loans during this time. Also, federal student loan interest rates are generally lower than rates for private loans disbursed in the same time period.

It should be noted, however, that refinancing a federal student loan with a private lender means you’ll no longer be eligible for federal programs and protections like income-driven repayment, forbearance, or Public Service Loan Forgiveness (PSLF).

The Takeaway

Interest rates for federal student loans reset every year in June for the upcoming school year. For the 2022 school year, rates are up roughly 1% compared to the previous year, which saw the lowest rates in years.

If you refinance your student loans with SoFi, there are no origination fees or prepayment penalties. The application process can be completed online, and you can find out if you prequalify for a loan, and at what interest rate, in just a few minutes.

SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.

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It’s possible to roll student loans into a mortgage using a cash-out refinance. In order to to do this, you’ll already need to have enough equity in your home. While this could potentially help you secure a lower interest rate, it’s not the right choice for everyone. Read on for more information on situations when it may make sense to roll your student loan into a mortgage and other strategies to pay off student loan debt.

Paying Your Student Loans

Paying off one loan with another is a standard form of debt reshuffling or consolidation. When it comes to student loans, though, your options may seem limited. It is, however, possible to roll student loan debt into a new mortgage through a cash-out refinance loan — as long as you have sufficient equity in your home.

But just because you can, it doesn’t mean you should. Here are some tips on how to consolidate student loans into a mortgage — and whether it may be the right move for you.

Rolling Student Loans Into a Mortgage

A cash-out refinance is a type of mortgage loan that enables you to turn a portion of your home’s equity into cash. Simply refinance your existing mortgage for more than what you currently owe into a new loan with new terms and keep the difference.

Once you have the cash in hand, and as long as there are no loan conditions to pay off specific debt with the cashout, you can do whatever you want with it, including paying off your student loans.

You may need to do the legwork of determining how much you need to add to the new proposed loan and may be responsible for ordering the final payoff. If it is not a condition of the new mortgage loan, the lender would normally not request escrow to order the payoff and pay the loan in full at loan closing. If you would like escrow to perform this service for you, just let them know.

Once you’ve completed the loan consolidation process, you may still have the same amount of debt as you did before (possibly more if you added any applicable closing costs to your new loan). You’ll just be paying it all in one monthly payment, based on your new mortgage terms.

If you want to refinance student loans into a mortgage, it could be beneficial in some situations. However, it’s important to understand the benefits and drawbacks of doing so and also to compare the benefits of this option with other alternatives.

One such drawback is that you may no longer be eligible for federal student loan benefits , such as the ability to pursue federal student loan forgiveness or federal student loan repayment plans. This includes income-driven repayment plans, where your monthly student loan repayment changes according to your income.

Pros and Cons of Rolling Student Loans into a Mortgage

Depending on your debt situation and your credit profile, consolidating student loans and your mortgage into new terms could be a smart idea or a terrible one. Here are some of the pros and cons to consider.

Pros of Rolling Student Loans into Mortgage

•   It could lower your interest rate: If you pay a higher interest rate on your student loans and current mortgage vs. a new Cash-Out Refi, consolidating may help reduce how much you pay in overall interest.

•   It could lower your monthly payment: If you qualify for a lower interest rate and choose a longer repayment period with the new loan, it may significantly lower the total amount you pay each month for your mortgage and student loans combined. Keep in mind that extending the life of the loan may mean you pay more in interest in the long-term.

•   It simplifies your finances: Having a single monthly payment might make your finances easier to manage. The fewer monthly payments you have to keep track of, the better. If you have multiple student loans, rolling them into your mortgage can make your life easier.

Cons of Rolling Student Loans into Mortgage

•   You could end up paying more interest over time: Stretching a 10-year student loan repayment term to up to 30 years could end up costing you more in interest, even if the interest rate is lower. Also, if you have paid down a 30 year mortgage for a few years and originate a new 30 year mortgage, you will be extending your existing loan term and may be paying additional interest over the life of the loan.

•   You may not be eligible: To qualify for a cash-out refinance loan, you typically need to have at least 20% equity left over after the new loan amount on the cash-out refinance. Even if you do have more than 20% equity right now, the difference might not be enough to pay your student loan in full.

•   You may pay closing costs: Depending upon the rate and term you choose, you may have applicable closing costs. FannieMae offers a program for student loan cash-out refinance loans. Consider getting a quote for this program and compare the rate and fees of this program to a standard cash-out refi.

•   You may be reducing the amount of available equity in your home: Taking cash out of your home can reduce the amount of available equity in your home. Market value fluctuations can also impact the amount of available equity.

3 Alternatives to Rolling Student Loans into a Mortgage

Before you seriously consider consolidating student loans into a mortgage, it’s important to know what other options you may have for paying down your debt faster.

1. Refinancing Your Student Loans

Whether you have federal or private student loans, you can refinance your student loans with a private lender like SoFi. Depending on your credit, income, and financial profile, you may qualify for a lower interest rate, monthly payment, or both.

You can also gain some flexibility by choosing a longer or shorter repayment term. Keep in mind that refinancing federal student loans means they’ll no longer be eligible for any federal programs or borrower protections, such as income-driven repayment plans.

2. Seeking Repayment Assistance

Employers are increasingly offering student loan repayment assistance as an employee benefit. Well-known companies that provide this repayment benefit include Aetna, Fidelity, PricewaterhouseCoopers, SoFi, and more. If your current employer doesn’t offer student loan repayment assistance, consider finding a job that does when you are next seeking employment.

3. Apply for Student Loan Forgiveness or Grants

Depending on your career path, you may qualify for student loan forgiveness or grant programs. Examples of these programs include (but are not limited to):

•   Health care

•   Veterinary medicine

•   Law

•   Military

•   STEM

If you’re working in one of these fields or a similar one, check to see if there are forgiveness or grant programs for which you may qualify. As previously mentioned, a cash-out refi may make you ineligible to participate in these programs. Check on any possible loss of benefits before considering a refinance of these loans.

Deciding If Rolling Student Loans into a Mortgage Is Right for You

Using a cash-out refinance to consolidate student loans and a mortgage into one affordable monthly payment sounds appealing, especially if you can get a lower interest rate than what you’re currently paying. But it’s crucial to consider all of the costs involved before you make a decision.

A lower interest rate, for instance, doesn’t necessarily mean you’ll pay less interest over the life of the loan. Work with a mortgage loan officer or run an amortization schedule in order to do the math.

Also, keep closing costs in mind. Closing costs can vary depending upon the loan scenario and is tied to factors such as the interest rate you choose, your credit score, loan type, property type, and more.

And paying closing costs is not a given. For instance, you can choose to take a higher interest rate (if it is still lower than what you currently have) and use the lender rebate money built into that higher rate to cover some or all of your applicable closing costs. When the time comes to lock in your rate, speak with your chosen lender about various loan programs and the estimated closing costs tied to each rate and term option.

Finally, take a look at some of the other options out there and determine whether you could potentially save more money in interest with them. The more time you spend researching, the better your chances of settling on the option that is most affordable overall.

Can You Buy a House With Student Loans?

While existing debt can impact whether you’re approved for a loan, or the interest rate and loan terms if you are approved, it’s still possible to buy a house with student loan debt. When you apply for a mortgage, the lender will review your complete financial picture including your debt obligations, which might include student loans, credit card debt, or a car loan.

Debt-to-income ratio is one important consideration for lenders. This is a measurement of how much debt one has in comparison to how much money you earn and lenders rely on this metric to inform whether or not you’d be able to make the monthly payments on a new loan, considering your existing debt. Generally speaking, lenders are unlikely to approve anyone for a mortgage with a debt-to-income ratio higher than 43%, though lenders may be more inclined to lend to someone with a debt-to-income ratio lower at or less than 36%.

Beyond debt-to-income ratio, lenders will also evaluate factors such as the borrower’s credit score.

Before applying, do some number crunching to see what a mortgage might cost and how it will impact your overall debt-to-income ratio. This might be helpful in understanding the mortgage rates you may be eligible for.

In addition to traditional home loans there are programs available for first-time home buyers that might make buying a home with student loan debt more achievable.

Refinancing Student Loans With SoFi

If you are interested in consolidating your student loan debt at a lower interest rate but don’t want to roll them into your mortgage, you may instead want to consider student loan refinancing. With SoFi student loan refinancing, you can refinance your private or federal loans (or both!) with no application fees, origination fees, or prepayment penalties. And you still get the benefit of consolidating your loans to one payment, with a new (and potentially better) interest rate and loan terms. Keep in mind that refinancing any federal loans will eliminate them from federal programs and borrower protections such as income-driven repayment plans or deferment options.

The Takeaway

When paying down student loan debt faster, there’s no one-size-fits-all solution. The more information you gather about your options, the easier it will be to eliminate your debt as quickly as possible.

If you’re interested in refinancing your student loans, consider SoFi. Student loan refinancing at SoFi has no fees and as a SoFi member, borrowers qualify for perks such as career coaching, community events, and more.

FAQ

Is it a good idea to roll your student loans into a mortgage?

Evaluate all loan details carefully before rolling your student loans into a mortgage. Factors such as closing costs, loan term, any additional fees, and interest rate can all influence how much it will cost to borrow money over the life of a loan. In some cases, it may be possible to qualify for a lower interest rate when borrowing a mortgage. In other cases, extending the repayment of your student loans over a 30-year period with your mortgage may make it more expensive. If you have any questions on your personal financial situation, consider speaking with a qualified financial professional or mortgage loan officer who can offer a personalized assessment.

Can student loans be included in a mortgage?

Student loans can be included in a mortgage if you have enough equity in your home. Rolling student loans into a mortgage generally requires the borrower to take out a cash-out refinance loan, which allows you to turn a portion of your home’s equity into cash. Once you have the cashout in hand, you can pay off your existing student loans.

Terms may vary by lender. There are certain programs, such as Fannie Mae’s Student Loan CashOut Refi that specialize in this type of borrowing.

How much of student loans is counted for a mortgage?

Student loans are evaluated as a part of your overall debt-to-income ratio. In general, lenders avoid lending to borrowers with a debt-to-income ratio greater than 43%.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.

Let’s talk about student loan payments. Woo-hoo! OK, it’s not the most thrilling topic, but know what is serotonin-boosting? Paying off that very last loan.

How to Pay Off Your Student Loans

It’s the unglamorous work that goes on behind the scenes that make or break every business owner, athlete, or creative person. It is helpful to think about student loan repayment like any other big feat worth accomplishing.

It begins with knowing that paying down student loans in a smart and effective way can take a lot of planning, budgeting, and adapting.

While there is no single smartest way to pay off student loans, because everyone’s situation is different, there are steps that will put most borrowers in a position to pay off their student loans without too much pain and on a timeline.

Another goal could be to create a financial plan that includes your loans.

Strategies to Pay Off Student Loans

Here are nine steps to consider including in your student loan repayment plan.

1. Organizing All Of Your Debt, Including Student Loans

Keeping track of your student loans and other sources of debt can be tricky, especially if you are a recent graduate. Consider listing them. Include the student loan servicer, amount of the loan, monthly payment, interest rate, and when the loan should be paid in full.

If you aren’t sure what your monthly payments will be, you can use this student loan calculator to get a rough idea, or you can call your loan servicer.

If you have credit card debt or personal loans, include them on your debt list. With all of your sources of debt, you can then mark on a calendar the date that the monthly payments are due.

While you always need to make the monthly minimum payments on all debts (unless your student loans are within their grace period or are in forbearance), listing them allows you to identify which debts you may want to pay off first.

If you have high-interest credit cards adding up each month, a credit card consolidation loan may be a great option to look at, too.

Once your credit cards are paid off, you’ll want to think about whether your goal is to pay your loans off quickly, or to simply make the monthly payments until the loans are done. The former is one way to save on interest over time.

Some folks do prefer to pay only the minimum monthly amount on their student loans so that they can save a little for other things.

2. Budgeting to Include Loan Payments

It can take time and effort to develop a monthly budgeting system that works for you, but it is doable, and totally worth it.

To get started, track your monthly cash inflows and outflows for two months. Total how much money you spent in each category, including debt payments like student loans.

Once you have a general idea of what you’re spending in each category, you can begin to build a budget framework. For example, if you spend $300 on groceries one month and $350 the next, you can now set a realistic grocery budget. Leave room for annual and quarterly expenses as well as incidentals.

With a budget that is built to include student loan payments, you’ll be more equipped to make all of your payments on time and know how much is available to spend on other wants and needs. Also, understanding how you’re spending will allow you to identify the areas where you’re overspending.

3. Setting Up Automatic Payments

Hopefully your student loan payments are set up to be automatically deducted from your bank account. If they aren’t, you can contact your student loan servicer to set up autopay. That way you won’t miss a payment because you forgot or are somewhere where you can’t access the internet.

Remember, missed or late payments will negatively affect your credit score. Damaged credit could preclude you from opportunities in the future, such as being able to refinance your loans.

Many loan service providers offer a discount if you arrange to autopay. When you sign up, ask if such a discount is available.

4. Paying More Than the Minimum Monthly Amount

Paying more than the minimum monthly payment can be a great strategy if your goal is to pay off your loan faster than the stated term. You’ll also save on interest over the life of the loan by paying it off sooner. Even small amounts can make a difference.

To do this, instruct your loan servicer to apply any extra payments to the loan principal, or adjust your automatic monthly payment to a higher amount and clarify that you want that extra money dedicated to the principal.

Make sure, after the next month’s payment, that the money was indeed put toward the loan’s principal.

Recommended: Why Making Minimum Student Loan Payments Isn’t Enough

5. Paying a Lump Sum Toward Student Loans

Increasing your monthly payment isn’t the only way to put a dent in your loans; at any point, you are allowed to make a lump sum payment toward the principal.

You could put your tax refund, holiday or birthday money, work bonuses, or inheritance money toward your student debt.

6. Adjusting Your Repayment Plan If Needed

Most federal student loans come with a 10-year repayment plan unless you choose otherwise.

Income-driven repayment plans base payments on discretionary income and family size. The plans lower monthly payments by extending the length of repayment to 20 or 25 years, after which any remaining loan balance is to be forgiven.

Even though your monthly payments are lower, you will pay more interest over time (longer loan terms mean more interest payments, after all). So it’s not a great choice if you want to pay off your student loans quickly or pay as little interest as possible, but it is available to those who are having trouble making their monthly payments.

If you are planning to use the Public Student Loan Forgiveness (PSLF) program for your federal student loans, you will need to select one of the income-driven repayment plans.

7. Considering Refinancing Your Loans

When you refinance one or more student loans, a private lender like a bank, credit union, or online company pays off your current loans and issues one new student loan, ideally at a lower interest rate. A lower rate could mean substantial savings over the life of the loan.

With federal student loan consolidation, on the other hand, the government bundles your federal student loans into one, using a weighted average of the interest rates, rounded up to the nearest one-eighth of a percentage point.

It’s important to note that by refinancing your federal student loans to a private student loan, you will not be able to access federal programs like income-driven repayment plans, PSLF, and government deferment or forbearance. If you don’t need any of those benefits, a lower rate gained by refinancing could be worthwhile.

Exploring refinancing with a private lender takes little time and doesn’t cost anything.

8. Knowing Your Worth and Asking for a Raise

With any pay raise, you can use the extra income toward your financial goals. This could mean increasing the monthly amount you pay toward your student loans or making a lump sum payment.

How much money you earn is an important factor contributing to your financial stability and ability to pay down your student debt. While budgeting is important, so is knowing your worth and asking for more when you deserve it.

If you haven’t already, start keeping track of your successes so that at your next compensation conversation, you have concrete examples on why you deserve a salary bump.

9. Understanding Your Employment Benefits Package

Although student loan repayment help is not as widespread as retirement or health care benefits, more employers are offering that perk to attract and retain employees.

Whenever you’re comparing job offers, it’s a good idea to compare benefits packages; although they’re not flashy like a big salary or company equity, benefits can be just as valuable.

If you’re looking for a new job, you could include student loan repayment help in your search. While it obviously shouldn’t be your only consideration, it’s great to have an idea of what you’re looking for in an employer.

Recommended: Finding Jobs That Pay Off Student Loans

Refinancing Student Loans

Refinancing is among the ways to pay off student loans, and SoFi is a standout in that field. SoFi refinances federal and private student loans with fixed or variable rates and a range of loan terms.

Take a close look at your student loan balance and the rates you’re paying, and then check your refinance rate in two minutes.

FAQ

What is the smart way to pay off student loans?

To pay off any loan, it’s smart to look at the interest rate and repayment term. If you can manage the monthly payments, a short term and a low rate is a winning combo.

If the payments are too painful and a longer term is needed, it could be smart to make extra payments of any amount whenever you can.

The PSLF program forgives any remaining Direct Loan balance after 10 years of on-time payments and qualifying employment. That could be seen as a smart way to pay off federal student loans if a graduate commits to working for a government or nonprofit employer, but the program has had a 98% applicant denial rate.

How can I pay off $100k in student loans in five years?

Say what? Well, it has been done. It might take sacrifice (moving in with relatives, no eating out, no new car), putting chunks that would normally go to rent toward student loan debt, staying motivated by watching and listening to others’ stories of debt repayment, refinancing one or more times, and getting aggressive about payments.

Most refinance lenders will offer a lower rate for a shorter loan term. Of course, the shorter the term, the higher your monthly payments will be, but the less costly the loan will be. A borrower might find that a variable rate, which usually starts lower than a fixed rate, pays off with a short-term loan.

How do I pay off a five-year loan in two years?

By paying extra toward the principal, in dribs and drabs or in a lump sum, and/or refinancing to a lower rate. Federal law prohibits prepayment penalties for federal or private student loans, so that’s not a worry.

To keep your student loan servicer from applying extra amounts to the next month’s payment, tell your servicer, by phone, mail, or online, to apply any extra payments to the loan principal.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.