It can start to feel overwhelming when you have student loan payments, especially if you have other debt you’re responsible for.

One way to consolidate your debt is to roll student loans into a mortgage.

But is it a good idea, and how does it work? Let’s take a look at what happens if you decide to roll student loans into your mortgage.

Can you roll student loans into a mortgage?

Interestingly enough, it’s possible to roll student loans into a mortgage. However, the process isn’t simply adding your student loans to your mortgage when you buy a home. Instead, rolling your student loans into your mortgage requires that you have some equity in a home you already own. 

Generally, there are three main ways to roll your student loans into your mortgage:

• Cash-out refinance: With a cash-out refinance, you replace your old mortgage with a new loan for more than you owe, up to 80% of the equity you have in your home. You receive cash for the difference, and you can use it to pay off your student loans. If there’s money left over, you could use it for other purposes, including paying off other debt or making home improvements.
• Fannie Mae student loan cash-out refinance: This is a particular type of refinancing aimed at paying off student loans. With this refinance, the money goes to your servicer, and you can get cash in the amount of the lesser of $2,000 or 2% of the new loan. 
• Home equity line of credit (HELOC): When you have a HELOC, you don’t replace your loan by refinancing. Instead, you get a revolving line of credit — similar to a credit card — based on the equity in your home. You can then draw on this line of credit to get money to pay off student loans.

Both types of refinancing usually have fixed rates, while a HELOC often has a variable rate. Carefully consider which type is likely to be best for you. With a traditional cash-out refinance or HELOC, you have more flexibility with how you can use the funds, but a Fannie Mae student loan cash-out refinance will keep you focused and reduce the chance that you will misuse your funds.

Pros and cons when you roll student loans into your mortgage

Before you decide to reshuffle your debt by rolling student loans into a mortgage, carefully consider the advantages and disadvantages. Weigh the benefits and costs and look at your financial situation to see what might make more sense for you.

Pros

• Reduce your monthly payments: Combining your debt like this often can reduce your overall monthly payments. It can improve your monthly cash flow and might simplify your finances.
• Lower interest rate: Home loans sometimes have lower rates than student loans. As a result, you could pay thousands of dollars less in interest over time.

Cons

• Secure your debt with your home: When you use your home’s equity to pay off your student loans, you’re putting your house on the line. If you can’t make payments later, you could lose your home. Student loans are unsecured debt, so if you can’t make payments, your home isn’t likely to be at risk as long as you keep the debt separate.
• Loss of federal benefits: Once you roll your student loans into a mortgage, you lose federal benefits such as income-driven repayment plans, loan forgiveness programs, and special deferment and forbearance rules.
• You could pay more over time: Even with a lower interest rate, if the refinance lengthens your student loan term, you could end up paying more in interest. 

Alternatives to rolling your student loans into a mortgage

Don’t decide to roll your student loans into a mortgage until you’ve reviewed the alternatives. You might be surprised at some of the other options available to you.

Federal student loan consolidation

If you have federal loans, start by looking at consolidation. You can’t include private loans in a federal consolidation, but you can streamline your federal debt. With consolidation, you have one payment, and you can extend your repayment period to get a lower monthly payment. You could end up paying more in interest over time, but consolidation can be a good choice if you’re interested in simplified payments and better monthly cash flow.

Student loan forgiveness

There are several state and federal programs aimed at helping borrowers repay their student loans. You might qualify for partial or complete forgiveness after meeting the requirements of specific programs. These programs can help you reduce your student loan debt without the need to roll student loans into a mortgage. Check out various programs to see what you might be eligible for based on your profession, employer or other criteria.

Student loan refinancing

Finally, you could refinance your student loan debt instead of securing your student loans with your home. Refinancing works for both private and federal loans. You can get a large loan to pay off all your smaller student loans, streamlining your payments and potentially improving your cash flow. On top of that, if you get a lower interest rate, you could save on interest over time. Use an organization such as Juno to compare your student loan refinancing options and see if you can get a good deal that works for you.

Be aware, though, that if you refinance your federal student loans, you lose your federal loan benefits. Consider refinancing your private loans and then consolidating your federal student loans separately with the government if you want to maintain access to benefits. You might be able to consult with a student loan adviser to help you figure out the best course of action for your situation.

Bottom line

Can you roll student loans into a mortgage? Yes, but it’s not always the best choice. Carefully weigh the pros and cons and then look at the alternatives. In many cases, there are other ways to streamline your student loan payments, reduce your monthly obligation and still save money on interest.