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Homeowners can now tap into home equity to pay down student loan debt

November 7, 2016 | By

Many Americans can relate to the joy of graduating and starting their first job only to face the monthly grind of paying off their student loans.

The numbers are startling:

  • 40 million Americans today have student loan debt
  • 70 percent of college graduates have debt
  • 2015 graduates average $35,000 in debt

I graduated with $25,000 in student debt and just a degree in philosophy to show for it. I remember the feeling of relief the day I made my last payment on my student loan. A weight was lifted off my shoulders. All that time studying Plato paid off.

Read more: Can higher education help boost homeownership?

Good Company

Paying off student loan debt can take years and inhibit consumers from making other important purchases like buying a home. To help, Fannie Mae turned to SoFi, an online personal finance company.

With SoFi’s experience in refinancing student loan debt and online pre-approval process, we knew they would be a great partner to develop the Student Loan Payoff Refi solution announced Nov. 2.

Working Together

Now parents and other family members will be able to pay off debts for their loved one and lift that burden earlier, providing them more financial freedom. This, in turn, will help those stifled from homebuying by student debt become homeowners sooner, if that’s an option they’d like. An estimated 8.5 million households in the U.S. could potentially pay down or completely pay off student debt obligations with this new option, says SoFi.

Here’s how it works: Homeowners who have student debt or have cosigned for student debt can refinance their mortgages at a lower rate than what’s typically available and use the proceeds to pay off the balance of existing student debt. SoFi will pay down the student loan by disbursing the payment directly to the servicer of the student debt.

Typically, a cash-out refinance carries a higher rate. But with this program, Fannie Mae won’t apply additional fees so the rates are really low – much lower than most student debt rates. Why is Fannie Mae waiving the fees? Because when borrowers pay off student debts with their home equity, they become less risky.

Read more:  Student debt isn’t the roadblock to homeownership many believe

Cosigners can benefit enormously from this new loan option. Nearly 90 percent of private student loans made to undergraduates require a creditworthy cosigner, according to data compiled by Sallie Mae.

The offering is now available to existing SoFi customers (called members) and to new customers living in states where SoFi has mortgage licenses.

If the product gets traction, Fannie Mae will seek approval to expand this offering to all of its lender partners to hopefully chip away at the huge amount of student debt out there. I have to imagine that even Plato would like that idea.


Jonathan Lawless is Fannie Mae’s vice president of product development and affordable housing.





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