A recent refinance program between Fannie Mae and a private lender gives homeowners relief from their student debt burden.
Under a cash-out refinance student loan payoff program, homeowners will be able to refinance their existing mortgages to avail of lower rates and pay down their existing student loan balance. They will take out their home equity to pay off these student loan obligations.
SoFi, a nonbank lender and approved Fannie Mae seller servicer, will make the loans which will be backed by Fannie Mae. Like any cash out transaction, this will result in a new mortgage with a larger amount and a lower rate. SoFi does not charge origination fees on its mortgage products but standard third-party closing costs will apply.
The Student Loan Payoff Refi program aims to assist homeowners, including parents who cosigned on their children’s student loans, in managing their student loan debts. Some 8.5 mil. U.S. households are estimated to benefit from this program, by paying down or paying off their existing student loans.
The program comes amidst Experian data that reveals the following trends:
- Homeowners with outstanding loans that were cosigned have $36,000 in average student loan balance.
- Homeowners who have outstanding private Parent PLUS loans have student debts of $33,000.
Citing Sallie Mae data, it was noted that almost 90% of private student loans made to undergraduate borrowers required a creditworthy cosigner. It was also found that private Parent PLUS loans have higher rates compared to most mortgages’ borrowing costs.
“People can pay off student loan debt and are left with one loan at the low rates that mortgage borrowers are enjoying in today’s market,” according to Michael Tannenbaum, SoFi Senior Vice President of Mortgage in a Nov. 2 press release.
Fannie Mae Product Development and Affordable Housing Vice President Jonathan Lawless added, “The nation is seeing record-low mortgage rates and our partnership with SoFi is just one way that Fannie Mae is able to support current and future homeowners that have student debt.”
SoFi Cash-Out Refinance Eligibility
Under the Student Loan Payoff Refi Program, SoFi will first consolidate student loans with the existing mortgage. It will then refinance the total amount at a lower rate and at an LTV limit of 80%. SoFi will then directly disburse the payment to the student loan servicer, thus completely paying off the loan.
In order to qualify for a SoFi mortgage refinance, you need to meet its underwriting criteria – income, credit history, and employment status. These guidelines will apply:
- You must be of the age of majority in your state and a U.S. citizen. Those holding a resident alien status (permanent or non-permanent) are subject to further restrictions.
- The property to be refinanced must be a primary residence or second home located in 28 states where SoFi is licensed to issue and refinance mortgages.
- The property to be refinanced will be your primary residence or second home for at least 12 months.
In line with Fannie Mae’s mortgage underwriting standards, a credit score of at least 620 is required.
“And this option gives us an opportunity to both promote homeownership and relieve part of the country’s student debt burden,” SoFi’s Mr. Tannenbaum added.
Justin McHood is a managing partner at Suited Connector and has been recognized by national media outlets as a financial expert for more than a decade.