Susan E. Thomas CPA
Should I pay off my student loans early with a home equity loan?

Generally, the earlier you can pay off your student loans, the better off you'll be. You'll save interest and improve your debt-to-income ratio, a factor lenders consider when deciding whether to offer you credit. And your good payment record will be positively reflected in your credit history and credit score.

If you're a homeowner, you may want to consider paying off your student loans with the proceeds of a home equity loan. There are advantages and disadvantages to this alternative, and you'll need to analyze the financial consequences before you decide.

One advantage is that home equity loans may have longer terms than student loans, which may make your monthly loan payments lower. This can improve your debt-to-income ratio. In addition, the mental boost of having your student loans paid off can be significant.

On the other hand, if your home equity loan isn't used to buy, build, or substantially improve a qualifying residence, you won't be able to deduct the interest like you could in past years. In addition, student loans are unsecured debts, whereas your residence secures a home equity loan. If you can't meet your student loan payments, you may go into default and undermine your good credit record, but if you default on a home equity loan, you could lose your home to foreclosure.

Prepared by Broadridge Investor Communication Solutions, Inc, Copyright 2011