Applying for a home equity line of credit (HELOC) can feel overwhelming. Lenders check many factors before approval. One common question is: are student loans considered debt when getting a HELOC?
The answer is yes. Student loans are part of your debt profile. They impact your eligibility, credit score, and borrowing limit. But how much they affect your HELOC depends on several things.
Understanding HELOC: The Basics
A HELOC is a revolving credit line. You borrow against your home equity and repay over time.
It’s flexible. You can use the funds for renovations, emergencies, or even paying off higher-interest loans.
But lenders are cautious. They review your income, credit, and total debt load—including student loans.
Are Student Loans Considered Debt When Getting a HELOC?
Yes, student loans are included as debt. Just like credit cards, auto loans, or mortgages.
Lenders calculate your debt-to-income ratio (DTI). This helps them determine how much additional debt you can afford.
If student loan payments are high, they could limit your HELOC approval or loan amount.
Why Lenders Include Student Loans in Debt Calculation
Impact on Monthly Obligations
Monthly payments reduce your available income. Lenders want to ensure you can handle new payments without financial strain.
Even deferred or income-driven repayment plans count. Lenders often use 1% of the loan balance as a placeholder payment.
Risk Management
Lenders assess your risk as a borrower. If student debt is large, they may offer a smaller HELOC—or deny it altogether.
They aim to protect both themselves and you from financial overreach.
How Student Loan Type Matters
Federal vs. Private Loans
Federal loans often have lower interest and flexible repayment. Private loans may carry higher monthly payments.
HELOC lenders review your loan type, interest rate, and repayment status.
Lower student loan payments usually help your HELOC application.
Deferment and Forbearance
Even if your loan is in deferment, lenders may still count it. They estimate payments based on total balance.
Don’t assume a paused loan won’t impact your HELOC chances.
The Role of Credit Score
Student loans affect your credit. Positive payment history improves your score. Missed payments damage it.
A high score can offset the negative impact of your debt. But a low score, combined with high student loan debt, reduces HELOC chances.
Check your credit report before applying. Fix any errors or delinquencies.
You can request your free credit report here.
Debt-to-Income Ratio and Student Loans
How DTI Is Calculated
DTI = (Total Monthly Debt Payments ÷ Gross Monthly Income) × 100
This includes student loans, credit cards, car payments, and housing costs.
Most lenders prefer a DTI below 43%. Lower is better.
Student Loans’ Influence on DTI
High student loan payments raise your DTI. That limits how much you can borrow with a HELOC.
Reducing your DTI before applying improves your chances.
How to Minimize the Impact of Student Loans
Refinance or Consolidate Loans
Refinancing can lower your monthly payments. So can federal consolidation programs.
Lower payments mean lower DTI, which improves HELOC approval odds.
Make Extra Payments
Paying more than the minimum each month reduces your balance faster.
This improves both your DTI and your credit score.
Should You Use a HELOC to Pay Off Student Loans?
Pros
- HELOC rates are usually lower than private student loan rates.
- Interest may be tax-deductible if used for home improvements.
- Can simplify your debt into one payment.
Cons
- Your home is collateral. Miss a payment, and you risk foreclosure.
- HELOC interest rates are variable. They may rise over time.
Discuss this with a financial advisor before using your home to pay student debt.
Other Factors Lenders Consider
Home Equity
Lenders usually require at least 15–20% equity in your home.
The more equity you have, the better your HELOC terms.
Income Stability
Strong, consistent income offsets debt concerns.
Bonus: Higher income also improves your debt-to-income ratio.
Alternative Financing Options
Cash-Out Refinance
You replace your current mortgage with a larger one and take the difference as cash.
Useful if mortgage rates are low and you need a lump sum.
Personal Loan
Easier to obtain but may carry higher interest rates than a HELOC.
They don’t require home equity but often have lower limits.
How HELOC Payments Work With Student Debt
Draw and Repayment Periods
HELOCs have two phases:
- Draw period: Usually 5–10 years. You can borrow, repay, and borrow again.
- Repayment period: You make fixed payments, including interest and principal.
Make sure you can afford both HELOC and student loan payments during both periods.
When Student Loans May Not Hurt Your HELOC Chances
If your income is high and your payments are low, lenders may not see student debt as a risk.
Also, if your credit score is excellent and your home equity is strong, the impact is minimal.
Still, always disclose student loans. Hiding them will harm your chances more.
Key Takeaways: Are Student Loans Considered Debt When Getting a HELOC?
- Yes, lenders count student loans as debt.
- They affect your debt-to-income ratio and approval chances.
- Type, balance, and payment history matter.
- Improve your financial profile before applying.
- Never use a HELOC for student loans unless you understand the risks.
Frequently Asked Questions (FAQs)
1. Do student loans affect my HELOC limit?
Yes. High monthly student loan payments reduce how much a lender may offer you.
2. Can I get a HELOC with large student loan debt?
Possibly. Approval depends on your income, credit score, and debt-to-income ratio.
3. Will paying off student loans first help my HELOC application?
Yes. Lowering your total debt improves your DTI and makes you a better candidate.
4. Do student loans in deferment still count as debt?
Yes. Lenders usually estimate a payment even if none is currently due.
5. Should I use a HELOC to pay off my student loans?
It depends. There are risks, especially since your home is on the line. Consult a financial advisor first.