I can’t imagine that this would do much good for most people. What do you think?
I could see this working out under one scenario, which includes all of the following:
a) you're over the student loan interest deduction cap b) you get a lower APR on a HELOC with a fixed rate c) you continue to make the same payments as before, regardless of what the new minimum is
In that scenario, you’ll end up saving a few dollars, will be more tax efficient, and won’t carry the loan for decades. But, I think the discipline required makes it far from a sure thing, and you’re probably better off just trying to increase your payments on your student loan to pay it down faster.
I agree, especially with high income professionals that cannot currently deduct student loan interest paid.
The downside is if they are federal loans and you die, most of the time they go away. Poof. Forgiven. Your spouse doesn’t have to pay them. If they are part of your mortgage, then your spouse has to pay…just saying
Good point. I guess in that case you could consider increasing your life insurance if there was a concern for this scenario. The small amount of premium increase could potentially still be below the tax savings in certain situations.
I think ultimately it depends on the exact situation, it may be a good idea for some, but very bad for others.
Interesting. Student loans can’t be discharged in bankruptcy, but houses are merely foreclosed.
In general, if people are having trouble paying debt then debt reshuffling is just rearranging the charcoal briquettes in the middle of the grilling session.
i’ll have to check again, but i’m pretty sure you can deduct student loan interest from any loan that was used to either pay for eligible student expenses, or to refinance a loan that was used to pay for eligible expenses. it doesn’t have to be a loan specifically marketed as a student loan.
Relevant document is IRS publication 970:
Interest on refinanced student loans. This includes interest on both:
- Consolidated loans — loans used to refinance morethan one student loan of the same borrower, and
- Collapsed loans — two or more loans of the same borrower that are treated by both the lender and the borrower as one loan.
Caution If you refinance a qualified student loan for more than your original loan and you use the additional amount for any purpose other than qualified education expenses, you can’t deduct any interest paid on the refinanced loan.
That is my exact intention as home equity builds and student loans decline.
Owing ~$174k in student loans means I am well above the deduction cap at any realistic interest rate, but my home is only worth maybe $255k, so we could easily deduct all interest on any realistic mortgage. And even the fixed mortgage rates we’ve been able to get are lower than variable student loan rates. And, given my 70% savings rate, I can easily afford to add to my monthly payments if necessary as long as it benefits us in the long run (which it clearly would!)
Seems like a no-brainer, if you’re in a situation like mine. The only hiccup for me is that I want to make sure Mrs. Vigilante doesn’t pay any of my student loans, so that is being handled by consideration in a postnuptial agreement and by a small life insurance policy.