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Should You Combine Your Student Loan Debt With Your Mortgage?

Sep 24, 2013 Jennifer Williamson, Distance Columnist | 0 Comments

If you have a house and a student loan payment, it can almost be like you have two mortgages. So what’s stopping you from combining your mortgage with your student loan—and just paying one bill every month? There are a few benefits to these deals—and the terms can look tempting. However, there are significant drawbacks to combining your student loan with a mortgage as well.

Here’s a look at the pros and cons—mostly cons—of combining your mortgage and your student loan.

Pro: You only have to pay one bill

This is a benefit of consolidating any student loans—it makes the repayment process simpler. Just write one check per month as opposed to two, or three, or however many loans you have. For some people, the added simplicity makes their lives just a little bit easier. If you’re feeling swamped with bills and find it hard to keep track of your loans and other payments, you may be paying serious consideration to this option.

Pro: Your monthly payments could be reduced

If you combine your student loan and your mortgage, you could potentially reduce your monthly payments on a combined bill. That’s another big selling point that makes this type of deal compelling. Banks sometimes offer very low interest rates in order to attract graduates and homeowners into signing on to this type of deal.

Con: You’re paying more over the lifetime of both loans

The problem with consolidating your mortgage and your student loan is that, in most cases, you’ll be stretching out the payment terms on both loans—meaning that you wind up paying more loan interest in the long term, and have to keep paying the loan longer. Unless you’re only concerned with your monthly payment amount, there’s no way to see this as a good deal.

Con: You could put your house in jeopardy

There are lots of things that could happen to you if you can’t pay back your student loan. But home equity is protected in bankruptcy, unlike other assets—so it’s not likely a student loan creditor could seize your house. Unless, that is, your mortgage and student loan are tied up together. If that’s the case and you hit a financial rough patch and can’t pay back your loan, your house is at risk—and your lender can expel you from the house six months after your first missed payment. It makes the stakes of missing some payments quite a bit higher.

Con: Your mortgage loan is likely to have worse terms than federal loans

Federal loans can’t be discharged in bankruptcy, but they do have certain protections. If you can’t pay back a federal loan, you could potentially qualify for Income-Based Repayment or another repayment assistance program that reduces your monthly payments. You could also qualify for a deferment or forebearance, or even forgiveness depending on the profession you’re in. Not so for a mortgage, which is given out by a private company.

In general, combining your mortgage and student loans from a traditional or accredited online college is not worth the trouble it takes or the fees you may have to pay in order to put the deal in action. It leads to bigger costs in the long run—even if it reduces your monthly payments in the short run. And it leaves you vulnerable to added consequences, such as the possibility of losing your house, while taking away certain protections you are entitled to if you have federal loans. Be careful before signing any agreement consolidating your mortgage and student loans—be sure to talk to a disinterested third-party financial advisor and do plenty of research to decide whether it’s a good deal for you.



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