The Quick Read: A homeowner can use a cash-out refinance to retire student debt when the new loan stays within the equity limit for the program, the borrower is reviewed on income and credit, and the student loan is paid off in full at closing. Fannie Mae is the only agency with a dedicated student loan option, and it has strict payoff rules. The tradeoff is that unsecured student debt becomes debt secured by your home, and federal loan protections are lost.
Key Takeaways
- Conventional cash-out on a one-unit primary residence tops out at 80% of the home’s value. Two- to four-unit homes top out at 75%.
- Fannie Mae’s student loan feature requires a full payoff of at least one loan, paid straight to the servicer.
- At least one borrower on the mortgage must owe the student loan being paid off.
- Cash back to the borrower is capped under that feature.
- FHA Streamline and VA streamline refinance loans cannot pull equity out, so they cannot fund this.
- Paying off a federal student loan with mortgage money ends income-driven repayment and forgiveness options on that loan.
What Is a Student Loan Cash-Out Refinance?
It is a new first mortgage, larger than the one you have now, that pays off your existing mortgage and then pays off one or more student loans. The extra amount comes from the equity you’ve built. You end up with one mortgage payment instead of a mortgage payment plus a student loan payment.
Cash-out refinance estimate
The starting figures are an example value with a balance and a cash request in proportion. Replace them with yours.
Editable benchmark: 7.24% as of October 29, 2026 · Freddie Mac 30-year average via FRED®. A conventional market reference, not a cash-out refinance quote.
Illustrative starting assumptions: a $350,000 home value, a $193,000 current balance, the agency cap on a one-unit principal residence, a thirty-year term at the current Freddie Mac benchmark, and property taxes and insurance estimated at typical national rates. Every field is editable.
Illustrative estimate only — not a Loan Estimate, approval, quote, or commitment to lend. The rate field carries the weekly Freddie Mac thirty-year conventional benchmark, a market reference and not a cash-out refinance quote; a cash-out loan is priced by the lender at lock. The cash available is the loan the program cap allows less the balances paid off, before closing costs, which are not included. The HELOC line is the program’s combined loan-to-value ceiling applied to the same value and balance. Taxes and insurance are editable estimates. Licensed in sixteen states for consumer mortgages.
Fannie Mae introduced a dedicated version of this idea in Announcement SEL-2017-04, calling it a cost-effective way to use home equity to pay off student loan debt. Under the Fannie Mae Selling Guide, the usual extra charge for a cash-out loan is waived on these files. Pricing is generally better than a standard cash-out, but it is not necessarily “free.” Your loan officer’s current quote shows what applies to your file.
Other conventional and government programs can still pay off student debt as an ordinary cash-out. They just do not carry the special feature. Lendmire’s cash-out refinance programs page lays out the program families a borrower can choose among, and Lendmire arranges these loans as a mortgage broker through wholesale lenders, never as the lender.
What Are the Core Requirements?
The requirements fall into six groups: the payoff, the borrower, the equity, credit and income, the property, and the closing mechanics. Every figure below is subject to lender guidelines and full file review, and none of it is a commitment to lend.
| Requirement | What it means | Why it exists |
|---|---|---|
| Full payoff | At least one student loan paid in full | Keeps the feature a true payoff |
| Direct payment | Funds go to the servicer at closing | Money cannot be spent elsewhere |
| Borrower match | A borrower on the mortgage owes the loan | Ties the payoff to the borrower |
| Equity | 80% LTV cap, one-unit home | Leaves a cushion for the lender |
| Credit and DTI | Passes automated underwriting | Shows you can carry the loan |
| Property | Appraised, usually owner-occupied | Value sets how much you can borrow |
The payoff. The loan must be paid off completely. Partial payments are not allowed under the student loan feature. If you have several loans, you can choose which ones to retire, but each one you pay off must be paid in full.
The equity. On a one-unit principal residence, conventional cash-out is capped at 80% of the appraised value. On a two- to four-unit principal residence, it is 75%. The higher limits you see on rate-and-term refinances do not apply here. Texas adds a rule of its own: a cash-out on a homestead is capped at 80% of the home’s value by the state constitution.
Credit and income. Across the wholesale conventional programs Lendmire places files with, the starting point is a 620 decision score. The automated finding governs most files, with a total debt-to-income ceiling of 50%. Manually underwritten files use tighter ratios and more reserve factors.
Seasoning. The first mortgage you are paying off must be at least 12 months old, counted from note date to note date. A borrower must also have been on title for at least 6 months. Delayed financing, inheritance and legal-award exceptions exist. Fannie Mae’s guide describes delayed financing for buyers who purchased the home within the past six months, and cash-out pricing still applies in that case.
How Is the Loan Underwritten, Step by Step?
Underwriting follows the usual refinance path with a few extra steps tied to the student loan payoff.
1. Pick the program. Conventional Fannie Mae is the only lane with the dedicated feature. FHA cash-out and VA cash-out can retire student debt, but only as plain cash-out.
2. Run the file through automated underwriting. The student loan feature requires a Desktop Underwriter approval. A manual file does not qualify for it.
3. Count the debts. Student loans count toward your monthly obligations. If a student loan is deferred or in forbearance, the lender may use a fully amortizing payment based on documented terms, or another approved calculation. Many borrowers see their ratio improve because the payment disappears once the loan is paid at closing. If you only partly pay a debt, its payment stays in the ratio.
4. Collect documents. Expect pay stubs or other income proof, asset statements, your current mortgage statement, and a payoff statement from each student loan servicer you plan to pay.
5. Appraise the home. The appraised value sets the LTV. A lower value than you hoped for can shrink the amount you can borrow, and a payoff that no longer fits may not work.
6. Close. The Closing Disclosure shows the payoff going to the servicer. Cash back to you is limited by a cap in the current Selling Guide. Guide wording has changed over time, so confirm the current cap with your loan officer.
One more point: a high debt-to-income ratio can trigger a reserve requirement on automated files, meaning you must show savings left over after closing. Ask about reserves early. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
A Worked Example in Percentages
Here is a simple, illustrative file built entirely in percentages of the home’s value.
- Appraised value: 100%.
- Existing mortgage payoff: about 55% of value.
- Student loan payoff: about 10% of value.
- New first mortgage before closing costs: about 65% of value.
- Conventional cash-out limit on a one-unit primary residence: 80% of value.
This file fits inside the cap with room for closing costs. Now change one number. If the existing mortgage is closer to 75% of value, the same student loan payoff would push the loan past 80%, and the file would not work as structured. Equity is usually the first thing that decides this.
Which Student Loans Qualify?
Federal and private loans can both be paid off under the conventional feature, as long as the borrower is obligated on them.
A child’s Parent PLUS loan qualifies only if you, as a borrower on the mortgage, are the one who owes that loan. A loan held only in your child’s name does not qualify, even if you have been making the payments.
Co-signed loans work when the co-signer is the borrower on the mortgage and legally obligated on the loan.
A spouse’s loan qualifies when the spouse is a borrower on the new mortgage and is obligated on it. A spouse who is not on the mortgage creates the same problem as a child’s loan.
Deferred, forbearance and income-driven loans can be paid off. They affect how the lender counts the payment before payoff, and they affect what you give up, as covered below.
Loans in default are a separate conversation. A defaulted loan can also bring credit damage that makes the main file harder to approve. Raise it with your loan officer before applying.
Credit cards and other debts are not part of the student loan feature. A borrower who wants to retire both student loans and credit cards would use a standard cash-out, which does not carry the waiver.
Where Do the Government Programs Fit?
FHA. The FHA Streamline is a rate-and-term product for an existing FHA loan. Per HUD’s reference guide, it allows no cash back to the borrower except minor adjustments at closing. It cannot fund a student loan payoff. An FHA borrower who wants that would need an FHA cash-out, which carries lower leverage than a purchase.
VA. The VA IRRRL is also rate-and-term and only refinances an existing VA loan. A VA circular explains that cash-out refinances must pass a net tangible benefit test, and VA sets its own limits on how much of the home’s value can be borrowed. A veteran can use a VA cash-out to pay off student loans, but not through the IRRRL.
Freddie Mac. Freddie Mac cash-out is a standard cash-out that can be used for any purpose. There is no separate student loan version, so borrowers who pick that lane do not get the pricing waiver.
Jumbo. Above the conforming loan limit, the jumbo lanes take over. They have their own score and leverage rules, and no student-loan-specific feature.
What Do You Give Up With Federal Student Loans?
This is the part many borrowers skip, and it is the one most worth slowing down on. Federal student loans carry protections that a mortgage does not. The Consumer Financial Protection Bureau states that paying off a federal student loan with a home equity loan means losing benefits such as income-driven repayment. Active-duty servicemembers may also lose benefits under the Servicemembers Civil Relief Act.
Before you refinance federal loans into a mortgage, run through this list:
- Do you expect your income to drop, or to be unpredictable?
- Are you working toward a forgiveness program?
- Could you need deferment or forbearance in the next few years?
- Do you have a plan if the mortgage payment becomes hard to make?
If the answer to any of these is yes, keep the federal loan. If you simply want a smaller number of payments, a federal consolidation loan keeps federal protections in place. That is a separate decision from a cash-out refinance.
Private student loans are different, because they usually lack these protections already. For many borrowers, the loss is smaller when the loan being paid is private.
Is It Worth Doing?
It depends on what you are solving for. A cash-out refinance to pay off student loans tends to make sense when these things line up:
- Your equity is comfortable, with room under the 80% cap even after closing costs.
- Your income is steady, and the mortgage payment fits your budget with room to spare.
- The student loans are private, or you are comfortable giving up federal protections.
- You plan to stay in the home long enough for the closing costs to make sense.
It tends to be the wrong move when you would be borrowing near the cap, when your income is uncertain, or when you are close to finishing your student loan balance on your own.
Two cost issues deserve a plain look. First, closing costs apply to a cash-out refinance, and the new first mortgage replaces your old one, so the whole balance is reset. Second, if the new mortgage has a longer term, your monthly payment can fall while the lifetime interest you pay rises. Lower monthly pressure and lower total cost are not the same thing. Compare the total cost of both paths before you decide.
Then there is risk. Missed payments on a student loan hurt your credit. Missed payments on a mortgage can put the home in jeopardy. That shift from unsecured to secured is the core tradeoff.
How Does It Compare With the Alternatives?
| Option | How it works | Main tradeoff |
|---|---|---|
| Student loan cash-out | New first mortgage; servicer paid | Home secures the debt |
| Standard cash-out | New first mortgage; any use | No special pricing feature |
| Home equity loan or HELOC | Second lien on top of your mortgage | Keeps first mortgage, adds a lien |
| Rate-and-term refinance | Replaces mortgage; no equity pulled | Cannot pay student loans |
| Student loan refinance | New private student loan | No home at risk, less equity needed |
If you already hold a mortgage you like, a second lien can leave it untouched. If you want one mortgage and your equity supports it, a cash-out replaces everything with a single loan. If you would rather keep your home out of it entirely, refinancing the student loan alone is the lower-risk path.
Why Do These Files Get Denied or Stall?
Most problems trace to a handful of causes, and most have a fix.
- The borrower does not owe the loan. A parent paying a child’s loan is the common case. Fix: confirm names on the loan before applying.
- A partial payoff. The feature requires a full payoff. Fix: choose the loans you can pay entirely.
- Not enough equity. An appraisal lower than expected shrinks the loan. Fix: pay off a smaller loan, or wait and rebuild equity.
- High debt-to-income. Other debts can keep the ratio above the ceiling even after the payoff. Fix: pay down other balances first.
- Credit below the program minimum. Fix: check your score before applying and correct errors on your report.
- Seasoning. A recent purchase or recent refinance may not meet the minimum timeline. Fix: ask about delayed financing if you bought recently.
Key Terms Defined
Cash-out refinance: A new mortgage larger than your current one, where the difference is paid to you or to creditors you name.
LTV (loan-to-value): The new loan amount divided by the home’s appraised value, shown as a percentage.
DTI (debt-to-income): Your monthly debt obligations divided by your monthly gross income.
Servicer: The company that collects payments on a loan and receives the payoff at closing.
Seasoning: The minimum time you must have owned the home or held the existing loan before you can refinance.
Delayed financing: An exception that lets a recent cash buyer take out a mortgage on the home soon after purchase.
Next Steps
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. Start by gathering your mortgage statement and each student loan payoff statement. Then ask for a side-by-side look at keeping your current mortgage versus replacing it.
Frequently Asked Questions
Can I pay off only part of my student loan with a cash-out refinance?
Not under Fannie Mae’s student loan feature. Each loan you pay off must be paid in full, and the money goes straight to the servicer. You can choose which loans to retire, so a borrower with several loans can pay off one and leave the rest. A standard cash-out with no special feature is a different product with its own use-of-funds rules.
Can I use a cash-out refinance to pay off my child’s student loans?
Only if you are legally obligated on the loan. A Parent PLUS loan taken out in your name qualifies. A loan held only in your child’s name does not, even if you make the payments. The borrower on the mortgage must be a borrower on the student loan being paid off.
How much cash can I take home?
Very little under the student loan feature. Under the Selling Guide’s current wording, cash back is capped at the lesser of 1% of the new loan amount or $2,000. Older versions of the guide used a different formula, so confirm the current cap with your loan officer. The idea is that the equity goes to the payoff, not to spending money.
Can an FHA Streamline or VA IRRRL pay off student loans?
No. Both are rate-and-term products for existing FHA or VA loans, and neither lets you pull equity out. FHA and VA homeowners who want to retire student debt would need an FHA cash-out or a VA cash-out, which can fund the payoff as ordinary cash-out proceeds.
Is a cash-out refinance a smart way to pay off federal student loans?
It depends on how much you rely on federal protections. Moving federal loans into a mortgage ends income-driven repayment, forbearance options and forgiveness on those loans. Borrowers with steady income and plenty of equity sometimes accept that tradeoff. Borrowers with uncertain income often do better keeping the federal loan.
For your own numbers, request a scenario review with Lendmire.
For current guidelines and terms, see Lendmire’s refinance programs page.
About Lendmire
Lendmire is a mortgage brokerage (NMLS# 2371349) licensed for consumer mortgage lending in 16 states, arranging FHA, VA, conventional and jumbo purchase and refinance loans through a wholesale lending network. Eligibility is determined by the lender on each file. 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. Fannie Mae Announcement SEL-2017-04
2. Fannie Mae Selling Guide B2-1.3-03, Cash-Out Refinance Transactions
3. HUD Archives: Appraising Refinances
5. Consumer Financial Protection Bureau
This article is part of Lendmire’s cash-out refinance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Can You Do Another Cash-Out Refinance on the Same Home? · Best Cash-Out Refinance Program to Pay Off Rehab Costs Charged to Credit Cards · Best Cash-Out Refinance Program After Taking the Property Off the Market
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Legal disclosures. Lendmire (NMLS# 2371349) is a state-licensed mortgage brokerage that arranges financing through wholesale lender relationships. Lendmire is not a direct lender, depository institution, or registered financial advisor. The discussion above is general informational content about real estate financing — it is not financial, legal, or tax advice, and readers should consult licensed professionals for guidance on their individual circumstances. Loan inquiries are subject to lender underwriting; this article does not represent a commitment to lend. Loan terms, rates, and qualification standards vary by borrower, property, and state, and are subject to change at any time. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.