People sometimes go to desperate measures to try and pay off their Student Loan Debts in order to become free from the stress that comes along with the monthly repayments of the student loans. Some might even consider taking extreme actions just to pay off their Student Loan Debts. One such method that some borrowers consider is giving up their home and selling it just to pay off their student loan debts. Let us try and understand if this makes sense or not.
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Additional Costs of Selling Property
You can save thousands of your hard-earned money in the form of interest saved against paying your student loan if you can eliminate your student loan debt faster. Looking at the problem from this perspective, we can see a huge financial incentive towards ending our debt faster. But, one thing to keep in mind is that even with selling your house, there are a lot of costs involved that need to be factored in, like, finding a new place to live. Even though trading student loan interest rates for mortgage interest rates may seem like an enhancement, there are a lot of other costs associated with moving your residence. To sell a house, it needs to be listed first, which means a real estate agent will need to be hired as well. Also, the cost of a housing transaction is expensive and must be factored in your total cost as well. You may be able to crash at your family’s or relative’s or even a friend’s place for some time but that is ultimately temporary and you will need to find a place of your own soon. If you do not plan on buying another house, it would mean that you plan on renting out a living space, which again has its perks but can also be very expensive compared to living in a house that is your own property.
Mortgage Debt vs Student Loan Debt
If your plan is to sell your current property to pay off your Student Loan debts, and then buy another property for approx the same price, then you are basically just trading off your student loan debt for mortgage debt, which has its own implications. The biggest one perhaps being that you are likely to get your house foreclosed by the bank and find yourself homeless and on the street in case you miss your mortgage payments, something that would not happen if you missed your student loan’s monthly payment. And even though there are a few programs available for those who are having trouble with paying off their mortgage, the programs are not as good, compared to the ones available for student loan borrowers.
As an example, if you are a federal loan borrower, you can have payments of 0$ per month or your loans are forgiven in as little as 10 years under PSLF. Even private loans have interest rate reduction programs. There are still a few reasons why mortgage debt is slightly better compared to student loan debt. Mortgage debt has the advantage of a lower interest rate compared to student loan debt and the interest you pay on your mortgage is tax-deductible as well. The tax benefits affiliated with a mortgage debt far exceed those of the student loan debt.
An Emotional Prospect
A house is more than just an asset or a number on your balance sheet and for most borrowers, there is an emotional connection with the house they live in. Having your claim over a little piece of land that you can call home has a value that cannot be easily quantified. And a blank credit balance will hardly compare to the security of having a roof over your head, even if paying off your student loan will probably drastically reduce your stress levels.
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Alternatives to such Extreme Measures
Selling off your house should be one of the last options that you may have to consider in order to pay off your student loan. Before you decide to go through with such an extreme action, consider trying out other possibilities that might help remedy the situation.
- Try renting out your property and using the rent to pay off your student loan.
- Checking out a Home Equity Loan(Though there are some risks associated with this option that must be carefully examined beforehand)
- Exploring Student Loan Forgiveness for your Federal Student Loans.
- Consolidating Student Loans in the Private Space to get a lower Interest Rate.
- Getting another person to share your Living Expenses(Like a Roommate)
- Refinance your Student Loans. Check out the Best Companies To Refinance Your Student Loans to get a better idea.
If down the line, you got a better job in the near future that would’ve made your financial situation better, do you think selling off your house would be a good move? Being aggressive about slashing off your student loans is definitely a good thing but it should not be the only priority. You need to consider how a big move such as this will affect your life in the long run, over the course of the next decade or so. Consider a thorough analysis before you make a big decision such as selling off your home.