Can I Payoff My Student Loan With Home Equity?


Dear Steve,

Took student loan for 2500, wasn’t able to pay so it piled up over fees and interest and is now 10k.

How can I just pay it off at once and not have to pay the fees. I can put it on my home equity. I think I have enough.



Dear Josh,

There is nothing that would prevent you from taking out a home equity loan or a debt consolidation loan and paying off the student loan balance in full. A couple of items to consider though. A home equity loan will probably be at a lower interest rate than a debt consolidation loan. However, you are putting your home at risk if you fail to make the home equity loan payments. The debt consolidation loan will carry a higher interest rate but less risk to the house.

You could always attempt to negotiate a settlement, where you would pay less than the full balance owed, but the debt would be partially satisfied.

However, you need to be aware that any debt forgiven will be reported as a bad debt and if you are not insolvent then the amount of forgiven debt may be taxable as income.

If you are aware and accept those risks then you have the final hurdle of not really having any experience or frame of reference regarding what the particular creditor will settle for. How will you know if you are getting a good deal. The reality is you won’t unless you hire a consultant or counselor with experience.

So, if you do decide to go this road alone, just shoot for a negotiated settlement you are happy with, regardless of what they might have done for some other people.

Oh, and one last thing, if this is a federal student loan debt, don’t count on them accepting any settlement unless you are sued or file a bankruptcy adversary proceeding.

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Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
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