Pay Off College Student Loans with Cash Out Refinance

Most parents want to provide their children with any advantage they can, and a strong education can be the path by which children can gain independence and a secure future. Studies show that college graduates earn more money and are more likely to be able to hold a job than people who don’t attend college. College student loans can be paid in three ways: before, during or after college — and the costs can be exorbitant for all three. That’s why many people investigate the option of refinancing their existing mortgage. One way to pay off college student loans is with cash out refinance.

Cash-out refinancing is a mortgage refinance that allows you to access the equity in your home and turn it into cash. Even if you haven’t fully paid your mortgage, you can still tap into your existing equity and refinance your home. You can then use this cash to pay off college student loans and other expenses.

Is Refinancing with Cash Out a Good Idea?

If you have not saved for college prior to your child’s senior year of high school, you may be struggling to pay for college now. Borrowing money for college expenses may be your only option to pay for tuition, room and board, books, travel, etc. You are not alone. Many find themselves facing this same challenge without a personalized financial strategy. CrossCountry Mortgage can help with this challenge and, together, we can help you make smart decisions about paying for college.

If refinancing is the right option for you, CrossCountry Mortgage will help you select the best loan for your needs and walk you through the refinance process. Cash out refinance may be the right option for you.

Pros and Cons of Refinancing Student Loans with Cash Out

Before starting the process of refinancing for student loans, consider these pros and cons of cash out refinance:

Advantages of Cash Out Mortgage Refinance for Student Loans

• A cash-out refinance will give you money in a lump sum that you can use to pay for student loans and college expenses.
• The cash-out refinance interest rate may be lower than other education loan options available to you.
• The cash-out refinance could offer a tax deduction. Consult with a professional tax advisor to be sure.

Disadvantages of Cash Out Refinance for Student Loans

• When a prospective college student fills out the Free Application for Federal Student Aid (FAFSA) to obtain federal student loans and financial aid, the government will look at the parents' income and savings to calculate expected family contribution. The more you have, the less money your student will qualify for in terms of loans and financial aid. You can argue that you can fill out the FASFA and be granted loans and aid before you refinance, but, while that is true, you need to fill out the FAFSA each year. So, every year after the first year, you could be less likely to get loans and financial aid due to the additional funds received from the refinance.
• When using your home's equity to pay your debt, you’re putting your home at risk if you cannot repay the loan, so it's important to ensure that if you do decide to refinance that you are modifying your mortgage to more favorable terms, whether it means a lower rate or for a shorter time period for your loan.
• There are costs associated with refinancing. In some cases, these costs can be absorbed into the refinanced mortgage and are spread out over time, but these costs should not be overlooked. For these reasons, we may recommend a Home Equity Line of Credit (HELOC).

How Does Student Loan Refinancing Work?

Student loan refinancing is a process where borrowers replace their existing student loans with a new loan obtained from a private lender. To be eligible, borrowers typically need a good credit score and a stable source of income. They start by researching various private lenders offering student loan refinancing options, comparing interest rates, repayment terms, and borrower benefits.

Once a suitable lender is chosen, borrowers fill out a loan application, providing personal and financial information, as well as details about the student loans they wish to refinance. The lender then conducts a credit check and assesses the borrower's financial situation to determine their creditworthiness.

If the application is approved, the lender offers new loan terms, which may include a lower interest rate, a different repayment period, or other borrower incentives. If the borrower accepts these terms, the lender disburses the funds, and the existing student loans are paid off directly, effectively consolidating them into a single new loan.

After the refinancing process is complete, the borrower begins making payments on the new loan according to the agreed-upon terms. This can lead to benefits such as lower monthly payments, a shorter repayment period, or simplified repayment if multiple loans were consolidated.

However, it's essential to consider that refinancing federal student loans with a private lender comes with some trade-offs. Borrowers lose access to federal benefits and protections, such as income-driven repayment plans and loan forgiveness programs. Therefore, it's crucial for borrowers to carefully evaluate their financial situation and future plans before deciding to refinance.

Overall, student loan refinancing can be a beneficial option for those seeking to save money on interest and improve their repayment terms. Still, borrowers must weigh the potential benefits against the loss of federal benefits to make an informed decision that aligns with their unique financial goals and circumstances.

Other Options to Pay off College Student Loans

Let’s look at other college payment strategies to explore:

Free Money

• Scholarships and Grants — In addition to academic, athletic and artistic scholarships, you can check online for a wide variety of unusual scholarships that are based on hobbies and interests, how tall you are, where you live, and your family roots.
• Financial aid based on low income.

Earned Money and Financing

• Federal and private loans
• Work study programs

 

In addition to the options above, you can speak with us today to evaluate the advantages and disadvantages of a cash-out refinance.