The Average Medical School Grad Owes $250,000 in Student Debt. Can They Roll it Into Their Mortgages?

Becoming a doctor takes time…and money. A lot of it.

The average student debt held by medical school graduates is $250,995 according to the Education Data Initiative.

The average monthly payment is $2,275.

While doctors earn $229,300 per year according to the Bureau of Labor Statistics, the debt load can become burdensome.

One strategy to relieve pressure and improve cash flow is to consolidate the debt using home equity. Here are ways to do it.

Fannie Mae Student Loan Consolidation Program

Fannie Mae, the leading loan agency in the U.S., has created a program that makes it cheaper to consolidate student loans into a mortgage.

Lenders underwriting by Fannie Mae standards charge a steep premium for traditional cash-out refinances. These loans are considered riskier than purchase loans or no-cash “rate-and-term” refinances.

But there’s an exception: when cash-out loan proceeds pay off student loans.

Fannie Mae’s Student Loan Consolidation Program offers rates about 0.50% to 1.5% lower than standard cash-out loans, depending on credit score.

Eligibility requirements include:

• Pay off at least one student loan in full

• The student loan belongs to a borrower on the loan

• You have 20% equity left in the property after the refinance

• The loan amount is within local conventional limits ($766,550 to $1.15 million depending on the area)

There is no maximum amount of home equity you can pull out as long as you meet loan-to-value limits and qualify for the loan.

Student loan balances are rising nationwide, and no one feels this more than doctors. Fannie Mae’s program can be a welcome relief to medical professionals.

Physician Cash-Out Refinance

Many banks offer specialized programs for doctors, including cash-out refinance loans.

These lenders create their own rules that may be more lenient than Fannie Mae’s.

For instance, some offer higher loan amounts and loan-to-value ratios. Instead of allowing 80% loan to value, they may allow cash-out up to 95% of the home’s value.

They are typically more forgiving when doctors don’t have two years of self-employment history if they own a practice.

Program rules vary, so check with a physician loan lender for specifics.

Should You Consolidate Your Student Loans? Pros and Cons

It’s not always a good idea to wrap student loans into your mortgage. But it could work out well for some homeowners.

Pros

• Increase cash flow and lower monthly expenses

• You could reduce your student loan interest rates

• Wrap all debt into one payment

Cons

• Your mortgage rate may rise

• No longer eligible for student loan forgiveness should a program arise in the future

• Could lose tax advantages

• Lose income-driven repayment plan benefits

• You extend the repayment term to 30 years, increasing total interest paid

• You may not have enough equity in the home

For some student loan holders, it may come down to making life more simple and affordable. Reducing monthly expenditures by $1,000 or more could make a big difference, especially for young doctors with variable income or their own practices.

Student Debt Consolidation Example

*Rates and payments are for example purposes only and may not be available.

In this scenario, the homeowner wraps $220,000 in student loans into their mortgage. They receive about the same rate as they had before but their monthly payment total decreases since the loan is extended from 10 to 30 years.

See if a Student Loan Debt Consolidation Refinance is Right for You

Every situation is different and there are many moving parts when deciding to consolidate student loan debt.

Run numbers with a reputable lender to see if a consolidation cash-out refinance can benefit you.