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Question:


My husband put our daughter’s 35k student loan on our home-equity line of credit for a lower interest rate. Was this a poor decision?
-Worried


Answer:


Federally guaranteed student loans used to be a sweet deal for borrowers because the government repayment pledge limited default risk for banks, allowing them to reduce the interest rates they charged. There were also conditions under which borrowers could defer repayment. The deferrals still exist, but rates are not as advantageous as they once were, and borrowers who fall behind on payments are treated more harshly than in the past. It’s hard to answer your question without knowing the particular circumstances, but as long as you’re sure you can maintain payments – and you trust your daughter to keep up her end of the deal, assuming you expect her to repay you – then the low interest rate that your home-equity line almost certainly carries, combined with the tax break that you’ll probably receive on the interest that you do pay, means that you didn’t make a poor decision and probably made a good one.

-Conrad de Aenlle



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