Home Equity

HEIs: A Student Loan Forgiveness Alternative?

Student loan debt is one of the biggest financial issues that many people, especially Millennials, are currently facing. Education costs have skyrocketed during the past two decades, and millions of people used student loans in order to make it possible to earn their degree. Unfortunately, many people have been unable to pay their loans or at least have been unable to start to build wealth due to the excessive monthly payments.

Student Loan Forbearance Coming to an End

In spring of 2020, just as the Covid pandemic was starting and many workers were left unemployed as the shutdowns went into effect, the federal government put a pause on all student loans. The forbearance stopped the accrual of both interest and mandatory monthly payments. The forbearance was only supposed to be in effect for a few months, but it kept getting extended over and over again. Now that the pandemic is all but over and most people are back to work, there will soon come a time when the pause on payments will be rescinded, and millions of people will have to start making monthly payments again.

Student Loan Forgiveness in Limbo

Recently President Biden, through executive order, announced a plan to forgive up to $20,000 of student loans per borrower. While this would be welcomed by many, there is doubt about whether or not the President has the legal authority to order forgiveness. As of now, the case is currently tied up in a Supreme Court battle that will likely be decided sometime in summer of 2023.

An Alternative to Student Loan Forgiveness

While no one knows how the Supreme Court will decide the case, the details of student loan forgiveness are known. Most borrowers will have $10,000 wiped off their loan balances, while the borrowers who received Pell Grants at any point will have $20,000 forgiven. Even if the plan goes into effect, many borrowers will still have a substantial balance left on their loans. One way to wipe out this debt may be to tap into home equity.

Using a traditional second mortgage might not be the best way to pay off student debt. These loans typically do not have the high interest rates that something like a credit card would have. Also, student loan Interest is tax deductible, and mortgage interest is not. In this case, trading one type of debt for another may not be a good idea. One alternative that would work is a financial product called a home equity investment (HEI). This allows a homeowner to access home equity without taking on a monthly payment. It is not a loan that has to be paid back. Homeshares is one such product. If you have equity in your home and you want to use that to pay off student debt, this could be the best solution. Forbearance will end soon, and wiping out that student debt for you or your children will be crucial in starting to build long term wealth.

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