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Fannie Mae Student Loan Refinance Basics

It can be challenging to juggle repaying large mortgage and student loan balances simultaneously. One way to streamline your debt management is by rolling your student loans into your mortgage, and government-sponsored enterprise Fannie Mae (FNMA) offers a refinance program that allows you to accomplish that goal. Still, there are several risks to consider.

Here’s what you need to know about the Fannie Mae student loan cash-out refinance.

In this article:

What is a Fannie Mae student loan cash-out refinance?

The Fannie Mae student loan cash-out refinance is a program that allows mortgage borrowers to refinance their home loan and use their available home equity to pay off student loan debt. Proceeds from the transaction go directly to the student loan servicer — not to the borrower.

Fannie Mae student loan refinance guidelines combine criteria from both standard cash-out refinances and limited cash-out refinances. To qualify for a Fannie Mae cash-out refinance, borrowers must:

  • Pay off at least one student loan in the transaction
  • Have a maximum 80% loan-to-value ratio
  • Receive a maximum $2,000 cash back after the student loan payoff

Standard cash-out refi vs. Fannie Mae student loan cash-out refi

Fannie Mae’s student loan cash-out refinance differs in several ways from a standard cash-out refi. Let’s break down how they stack up:

Standard cash-out refi Student loan cash-out refi
  • Cash is disbursed to you directly
  • Can refinance your mortgage to pay off debt or for virtually any other purpose
  • Get cash back, up to the maximum allowed LTV of your home equity
  • Loan-level price adjustments (LLPAs) for cash-out refinances apply
  • Cash is sent directly to student loan servicer
  • Cash cannot partially pay off student loan, must be paid in full
  • Get limited cash back, up to $2,000
  • Cash-out refinance LLPAs are waived when all requirements are met


A quick note on loan-level price adjustments: Because they apply broadly to all cash-out refinance transactions, no matter your credit score, you can expect your interest rate to be higher than the rate on a rate-and-term refinance. The student loan cash-out refi is exempt from LLPAs — if all requirements are met — which means your rate likely won’t be as high as with a standard cash-out refi.

Risks of rolling your student loans into a mortgage

Tapping your home equity to consolidate debt comes with several risks, particularly when you’re rolling your student loans into your mortgage. Consider the following ways you could affect your financial picture through a student loan cash-out refi:

  • Impact your mortgage interest deduction. The mortgage interest tax deduction applies to interest paid on mortgages that are used to buy, build or substantially improve your home. When refinancing your mortgage, you can only deduct the interest paid on the balance of your original mortgage. The amount used to pay off your student loan debt wouldn’t qualify for the deduction.
  • Increase your risk of foreclosure. You’re borrowing against your equity to pay off your student loan debt and increasing your loan amount in the process. This means you’re taking out a larger mortgage and will have a larger monthly payment. More mortgage debt means a higher foreclosure risk.
  • Lose your student loan benefits. If you’re rolling federal student loan debt into your mortgage balance, you no longer qualify for the benefits associated with those loans. For example, you can’t apply for income-driven repayment or take advantage of student loan deferment or forbearance in cases of financial hardship. You also wouldn’t be able to claim the student loan interest deduction, which allows you to deduct up to $2,500 from your taxable income each year.
  • Pay more interest over time. By refinancing into a larger mortgage balance, you’re increasing the amount of interest you’ll pay over the life of your loan, especially if you’re extending your loan term.
  • Reduce your available home equity. With a student loan cash-out refinance, you’re reducing the total equity you’ve built over the years from paying down your mortgage and (hopefully) seeing a boost in your home’s value. Borrowing against your equity to pay off your student loan debt means you’ll spend more time rebuilding that equity.

Should you get a Fannie Mae student loan refinance?

Deciding to consolidate student loans into your mortgage can provide relief in the way of at least one less monthly obligation to manage, but you’re giving up some benefits in the process that can help make your student loan payments more affordable and provide relief when you’re facing difficult times.

Review the risks involved with a Fannie Mae student loan cash-out refinance before settling on this option to get rid of your student loan debt, and try the following tactics to pay down your debt sooner:

  • Consider refinancing your student loans with your existing servicer or a new one.
  • Cut back on your monthly expenses and put that extra money toward paying off your outstanding student loan balance.
  • Dedicate any and all windfalls — including bonuses, inheritances and tax refunds — to your outstanding balance.
  • Double-up on student loan payments each month.
  • Pick up a side hustle and use your earnings to make extra student loan payments.

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