The Quick Read: FHA has no special program for student debt. There is one FHA cash-out refinance, and the cash can go to any purpose, including paying off student loans. The new loan can reach 80% of the home’s value, so you need at least 20% equity left after closing. Whether it is the best fit depends on your equity, your credit, and the kind of student loans you hold.
What Is an FHA Cash-Out Refinance, and Is There a Student Loan Version?
There is no student loan version. An FHA cash-out refinance replaces your current mortgage with a larger one and pays you the difference. What you do with that difference is up to you. Some borrowers use it for repairs. Others use it to clear student debt.
FHA cash-out estimate
Seeded with an example value, a balance to match, and a round cash request; change any field.
Editable benchmark: 7.18% as of November 5, 2026 · Freddie Mac 30-year average via FRED®. A conventional market reference, not an FHA cash-out refinance quote.
Illustrative starting assumptions: a $350,000 home value, a $193,000 current balance, the FHA cap on a principal residence with the upfront premium financed, a thirty-year term at the current Freddie Mac benchmark, and property taxes and insurance estimated at typical national rates. Every field is editable.
An illustration, not a Loan Estimate, an approval, a quote, or a commitment to lend. The rate shown is the weekly Freddie Mac thirty-year conventional benchmark, used as a market reference; an FHA cash-out is priced by the lender at lock, and this is not an FHA cash-out refinance quote. HUD’s cap limits the base loan; the upfront premium is financed on top of the capped base loan; the monthly premium for the first year follows the snapshot’s schedule. Cash available means the base loan the cap permits less the balances retired, before closing costs, which this calculator leaves out. The line figure applies the line program’s combined loan-to-value ceiling to the same value and balance. Taxes and insurance are estimates you can edit. Licensed in sixteen states for consumer mortgages.
The home must be your principal residence. Lendmire’s FHA cash-out refinance program reaches 80% LTV on a home you have owned and lived in for 12 months before the case number is assigned.
Here is the part people miss. The 80% applies to the whole new loan, not just the cash. The new loan has to cover your old mortgage balance, any financed costs, and the cash you take. What is left over is your cash. HUD set this cap in Mortgagee Letter 2019-11, which lowered the limit from its earlier level. HUD’s press release said the change was meant to reduce risk in cash-out lending.
So “80% LTV” does not mean you can pull out 80% of your equity. It means the total loan cannot pass 80% of the appraised value.
How Is the Loan Underwritten, Step by Step?
Expect six steps. Each one can change how much cash you actually receive.
1. Eligibility screen. The home must be your principal residence, owned and lived in for 12 months. Lenders also review your recent mortgage payment history.
2. Full appraisal. Unlike an FHA Streamline, a cash-out needs an appraisal. A lower appraisal shrinks the maximum loan, because the cap is a percentage of that value.
3. Debt-to-income review. This is where student loans matter most. More on that below.
4. Payoff arrangement. The student loan balance is paid at closing, and the lender needs the balance and terms from the servicer.
5. Closing. The new loan pays off the old mortgage, covers costs, pays the student debt, and sends any remainder to you.
6. After closing. Your student loan payments stop for the loans paid off. Your new mortgage payment begins.
Four things decide the outcome: the appraised value, your current mortgage balance, your ratios after the student loan payment changes, and your credit.
How Does FHA Count Your Student Loans?
FHA counts every student loan, even one in deferment or on a $0 income-driven plan. HUD’s FHA Q&A on student loan payments says lenders must include all student loans regardless of payment type or status.
The lender uses one of two figures, depending on what the credit report shows:
- Payment above zero: the payment on your credit report, or your actual documented payment.
- Zero payment: 0.5% of the outstanding balance.
If the payment used is lower than the credit report shows, the lender needs written proof from the servicer. HUD’s Mortgagee Letter 2021-13 set the 0.5% rule and replaced older 1% and 2% approaches.
Why this helps a cash-out borrower: when a loan is paid in full, documentation showing that lets the lender drop the payment from your monthly debts. That can ease your ratios. For FHA, the base ratio pair is 31/43 (housing to total debt) with no compensating factors. With documented compensating factors, the ratios can reach 40/50 at the top tier. The automated underwriting finding on your file governs which limits apply.
The catch: your new mortgage payment is bigger. Removing the student payment does not always cancel that out. A lender runs the real numbers on your file.
What Does Mortgage Insurance Do to the Math?
It adds cost to the whole loan, not only the cash portion. FHA charges an upfront premium of 1.75% of the base loan, which is usually financed into the balance. It also charges an annual premium between 0.15% and 0.75% of the balance, depending on term, loan amount, and LTV.
Duration matters. On a thirty-year loan above ninety percent LTV, the annual premium lasts for the term. At or below ninety percent, it ends after eleven years. A cash-out capped at 80% falls in the lower bracket on that test, but your exact outcome depends on your file. HUD cut annual premiums in Mortgagee Letter 2023-05, and the full schedule sits in that letter’s appendix. Final terms follow the lender’s full file review.
Think of the insurance as part of the price of using this program. Weigh it against what your student loans cost you now.
Federal or Private Student Loans: Which Should You Pay Off?
This is the biggest decision in the whole article. Paying off federal loans with home equity ends your access to federal protections for good. The CFPB’s guidance on refinancing student loans says converting federal loans into private debt means losing federal benefits and protections. Its repayment guide says to think carefully first, because a lower cost can come at the price of flexible repayment options.
Your student debt also becomes mortgage debt secured by your home. Miss student payments today and you face credit damage. Miss mortgage payments and you risk the house.
| Loan type | What you may lose | General fit |
|---|---|---|
| Federal, on income-driven plan | Flexible payments, forgiveness options | Usually a poor fit |
| Federal, steady payer, no forgiveness plans | Deferment and forbearance options | Possible, with care |
| Private | Little, since private loans lack those protections | Often the stronger candidate |
Private loans are usually the cleaner candidate because there are fewer protections to lose. Federal loans deserve a harder look.
Which Borrower Fits Which Path?
The best program for your situation depends on what you already hold and what you need.
| Your situation | Likely path | Why |
|---|---|---|
| Own an FHA loan, want only a lower payment | FHA Streamline | No appraisal, limited credit review, but no cash out |
| Own home 12+ months, 20%+ equity, want cash for debt | FHA cash-out | Capped below the home’s full value, ratio flexibility |
| Credit or ratios are tight | FHA cash-out, with compensating factors | FHA ratios can stretch to 40/50 |
| Strong credit, plenty of equity | Compare conventional options too | Insurance structure differs |
| Veteran with an eligible loan | Compare VA cash-out | Different leverage and fee structure |
A broker matters here because the answer is a comparison. Lendmire works with a network of wholesale lenders, shops the scenario across them, and matches it to the program that fits. For the same debt-payoff logic on the VA side, see Lendmire’s piece on the best VA cash-out refinance program to pay off credit card balances.
The FHA Streamline is not a cash-out product. It refinances an existing FHA loan and continues the premium, with a net tangible benefit required. The FHA rate-and-term refinance with an appraisal reaches 97.75% on a principal residence occupied for the previous twelve months, but it is also not for taking cash.
Where Does the General Rule Break?
Several situations change the answer.
- Owned less than 12 months. FHA cash-out generally does not apply. Lenders set their own rules on exceptions, so ask before assuming.
- Rental or second home. Standard FHA cash-out is for a principal residence only. Occupancy decides the leverage.
- Thin equity. The 80% cap applies to the whole loan, so a home with modest equity may not leave enough cash after the old mortgage and costs are paid. A lower appraisal makes it worse.
- A zero-payment account on your credit report. It still counts as 0.5% of the balance. The loan can look bigger to a lender than it feels to you.
- Student loans in default. Federal eligibility checks may flag a defaulted federal loan, and that can hold up the file. Talk to the lender before applying.
HUD’s Handbook 4000.1 is the policy source for all of this. Lenders may add stricter rules of their own.
What Credit Do You Need?
The wholesale programs Lendmire places FHA loans with start at a 580 decision score. HUD’s own rules reach lower, but the network does not go below 580. Credit events carry HUD waiting periods: two years from a chapter 7 discharge and three years from a foreclosure. Those are HUD rules, not a promise from any lender. County loan limits apply and change yearly.
Is Paying Off Student Loans With Home Equity a Smart Move?
Sometimes. Here is how to think it through without a calculator.
It tends to make sense when:
- Your student loans are private, so you give up little.
- You have comfortable equity beyond the 20% cushion.
- Your budget can carry a larger mortgage even if income dips.
- You are not counting on forgiveness or income-based plans.
It tends not to make sense when:
- Your loans are federal and you may use forgiveness or flexible plans.
- Your equity barely clears the 80% line.
- You would stretch a short student loan term into a thirty-year mortgage and pay far more over time.
- Your income is unstable.
The term reset is a quiet cost. A student loan with a few years left becomes thirty years of mortgage debt. A lower monthly payment can still cost more in total. Add closing costs and the insurance premium, and the savings can disappear.
Alternatives exist: refinancing the student loans on their own, a HELOC, a home equity loan, or a personal loan. Each carries its own tradeoffs, and a HELOC or equity loan does not require replacing your first mortgage.
Key Terms Defined
Cash-out refinance: A new, larger mortgage that pays off your old one and gives you the difference.
LTV (loan-to-value): The loan amount divided by the home’s appraised value.
Adjusted value: The appraised value figure FHA uses to apply its 80% cap.
Mortgage insurance premium: FHA’s upfront and annual charges that protect the lender, paid by the borrower.
Case number: The FHA file number assigned to your loan, which sets the date for the 12-month ownership test.
Debt-to-income ratio: Your monthly debts compared with your gross monthly income.
What Should You Prepare Before Applying?
- Payoff statements and servicer details for each student loan
- Recent mortgage statements showing a clean payment history
- Proof of 12 months of ownership and occupancy
- Income documents and your credit profile
- A rough sense of your home’s value and equity
If the cash falls short of the full student debt, you can often target the loans with the highest cost or the fewest protections first.
Frequently Asked Questions
Does FHA have a student loan cash-out refinance?
No. FHA has one cash-out refinance, and the proceeds can be used for any purpose. Paying off student loans is one use. The student-loan-specific cash-out products you may see advertised sit in other loan programs.
How much cash can I get?
It depends on your appraised value and your current balance. The new loan, including your old mortgage, financed costs, and the cash, cannot exceed 80% of the value. Your cash is what remains after the first two.
Will my student loan payment still count if it is $0?
Yes. HUD requires lenders to count it. When the credit report shows zero, the lender uses 0.5% of the balance. Paying the loan off at closing can remove that line from your debts.
Can I keep forgiveness options after paying off federal loans with my home?
No. The CFPB states that converting federal loans into other debt means losing federal benefits and protections. Consider this carefully before paying off any federal loan.
Can I pay off only some of my loans?
Often yes, subject to lender guidelines. Many borrowers pay off the private or highest-cost loans and leave federal loans in place. The cash available and your ratios shape that choice.
Next Step
If you are weighing a cash-out refinance against keeping the loan you have, Lendmire can help you compare the programs and the equity each one reaches. Reach out at 828-256-2183 or request a quote at the Lendmire quote page. Every figure here is subject to lender guidelines and full file review, and nothing here is a commitment to lend.
About Lendmire
Lendmire — NMLS# 2371349 — is a mortgage broker that arranges FHA, VA, conventional and jumbo home purchase and refinance financing in 16 states through wholesale lenders. Every option is subject to the lender’s guidelines and full underwriting. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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Informational only. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
References
1. HUD Mortgagee Letter 2019-11
2. HUD press release on cash-out LTV cut
3. HUD FHA Q&A: monthly payment on a student loan
4. HUD Mortgagee Letter 2021-13
5. HUD Mortgagee Letter 2023-05
6. CFPB Ask CFPB: consolidate or refinance student loans
7. CFPB: Federal and private student loans
This article is part of Lendmire’s FHA cash-out refinance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Best FHA Cash-Out Refinance Program to Pay for Renovations · Best FHA Cash-Out Refinance Program When Maximum LTV Sets Your FHA Cash-Out Amount · Requirements for an FHA Cash-Out Refinance That Appraises Low
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Important disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage brokerage. Lendmire is not a direct lender, depository institution, or financial advisor. All loan inquiries are subject to lender underwriting; this article does not constitute a commitment to lend. Rates, terms, and program guidelines are subject to change without notice and vary by borrower profile, property type, and state. Information in this article is general in nature and is not financial, legal, or tax advice. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.