In November of 2016, with $262,000 in student loan debt, my wife and I took a leap of faith.
We decided that we would try a seldomly used debt pay down strategy called “Equity Optimization” to tackle our massive student loan problem.
Through a series of connections, we learned that we could use a heloc to pay off our student loans faster.
In March of 2018, we made a $40,000 student loan payment… leveraging our home's equity (screenshots below).
And toady, I want to share with you how to “HELOC student loans” good-bye!
How to Use a HELOC to Pay Off Student Loans

Now you might be wondering why someone would do leverage debt, to pay debt.
Hopefully, in the next 4 minutes of reading, you might learn something that can potentially change your financial future.
When I first started Money Life Wax I wrote about how we used a HELOC or Home Equity Line of Credit to pay off debt.
Basically, the article focused on how to pay off a mortgage in 5-7 years by leveraging said HELOC.
At first this approach might seem a bit confusing, maybe risky, and even dumb.
However, if you read about leveraging a HELOC to pay off student loans, other debt, or your mortgage – you might learn something that can really help you down the road.
HELOC Ground rules to keep in mind as you read:
- Don't automatically hate, doubt or say it doesn't work. Humans can be naturally skeptical, don't be.
- Realize that it may apply to you later in life so it is worth the read.
- Don't think because mega refinance companies post things like, “The Dangers of Home Equity” that it doesn't work. Remember its the internet, people can post whatever, including me. Also since the approach can be seen as “tricky” most common wisdom out there says to avoid using it.
- Having a positive monthly cash flow and equity is essential.
- The equity optimization concept works differently depending on your situation.
How we made a $40,000 Studnet Loan Payment using a HELOC:



Student Loans and a HELOC:
So what am I talking about…
In November of 2016, Lauren and I met the owner of Truth in Equity, Bill Westrom, through some financial counseling we did for our student loan debt.
A trusted mentor we use to help make financially sound decisions told us they knew a guy who specialized in helping people pay off their mortgages at accelerated rates and maybe he could help us with our student loans.
Fast forward to March 2018 and we just implemented our third installment of what he calls, “The HELOC Acceleration,” or “Equity Optimization.” A similar concept (That IMO is risker) is using your 401K to pay off debt.
How we leverage a HELOC
So did we payoff $40,000 in one day? Yea, well sorta.
As far as student loan servicer, “My Great Lakes” is concerned we did and that is all that matters. What we really did is reshuffle our debt from a student loan to our home equity line of credit.
Now you might be asking, why did we do that?
Because the original unsubsidized balance of $45,000 on this particular student loan was now at $57,000 and growing daily because of interest. In fact, it was going up at about $325 a month since it was at a 7.9% interest rate.
Our monthly required minimum was not even covering the interest on the said student loan.
Yes but what if the interest rate is higher on the HELCO??
Do not get so fixed on the interest rate, because it is not about the rate about, it is about the principal balance that rate is derived from!
Related: 5 Rules to Stop Making Money Complicated
HELOC Rates & Balances:
By making a $40,000 payment with our HELOC, the loan balance is now at $17,000 (Interest on a $17,000 balance is a lot less than a $57,000 balance).
And while we just moved or what I like to say “shuffled” the debt to the HELOC, which is at 4%, I don't really care about the rates.
When we apply this concept, our HELOC balance sits at $45,000. By making $5,000 payments towards the line each month we rapidly decrease the HELOC balance making it harder for interest to catch up. Our goal is to pay off $40,000 of that in the next 8 months.
So…If our goal is to make payments of $5,000 a month, you might be asking why not just manually make those payments towards your student loans?
By dropping the student loan from 57 to 52, then 52 to 47, 47 to 42 and so on would take just as long assuming you stay consistent, but you wouldn't get ahead on the interest.
It helps that the HELOC's monthly interest is significantly lower than the student loan, but it doesn't really matter. Instead of paying $325 in interest each month, we are paying closer to $80, with that number coming down daily. When the line is down into the teens the interest charge is less than $40.
Going back to the consistent statement, most people don't stay consistent because life happens. So we use our HELOC like our own personal bank. We throw all of our funds in there, then 2x a month pay off our bills. Personally, we have a grocery credit card, an everything else credit card, and we throw funds into our checking to make other monthly minimum payments.
And while most will say words like dangerous or as this student loan company says, “Risky“, (I mean why would a student loan consolidation company want you paying off loans quickly…), we just said what the hell!
And thank God we did because we have finally been able to take control of our student loans!!!
Will this process work for you? Not sure. The ultimate variable is honestly you.
Do you live on a budget?
Can you stick to your budget?
Do you have a positive monthly cash flow to make a dent in the HELOC?
HELOCS are not Risky.
You can easily find a place to get a HELOC or read up on things like Hometap. One thing I like to clear up. Using a HELOC is not risky.
- My buddy Cube over at AbandonedCubicle.com uses a HELOC for his rental properties.
- My friend that owns a roofing company keeps a business line of credit at all times.
- We use a HELOC for our student loan debt… at all times.
Home equity lines of credit are not risky. People who spend money incorrectly are risky.
We have all heard of people using a line of credit to buy a car, remodel their home, or take a vacation. If you plan on using a HELOC for that then, by all means, don't ever take one out. If you can't pay cash you don't need it.
A home equity line of credit is not risky when you are using it to get ahead on your debt or mortgage. For example, guess what we plan on doing when we are done with our student loans?
You guessed it – we will take $40,000 chunks and pay off our mortgage as fast as possible. Then we will use the same method for investments. Here is why it is not as risky as you might think.
Equity is a Dormant Asset.
Equity is a phenomenal asset.. when you go to sell. Up until that point, your home's equity is a dormant asset.
Read about investors who do cash-out refinances to buy more real estate property, or use HELOC's to make a down payment on their real estate. They understand how equity works. There is no liquidity in a home until it is sold.
Or until you use a HELOC to make your money go to work!
By using a HELOC we are taking advantage of the dormant asset to basically have multiple options. It also keeps us motivated to quickly pay down the HELOC each month. Like I said earlier, we implemented our third installment in 14 months. Jan 1st, 2019 we will implement our 4th in just over 2 years.
We have two more installments to go until we are student loan debt free!
Q: Would you consider using a HELOC to pay off student loans? Comment below!
Josh writes about ways to make money, pay off debt, and improve yourself. After paying off $300,000 in student loans with his wife in less than five years, Josh started Money Life Wax and has been featured on Forbes, Business Insider, Huffington Post, and more! In addition to being a life-long entrepreneur, Josh and his wife enjoy spending time with their chocolate lab named Morgan, working out, being outside, traveling, and helping others with their finances! I got serious with money when I used Personal Capital to track my finances.
Awesome. You REALLY got me thinking about trying this for our mortgage pay down strategy. Hmmm… What if the HELOC interest rate is a couple points more than the mortgage? Would you suggest not using the strategy in that situation?
Hey man!
Yes it is really worth it. I am not sure exactly, but I think the way it goes is it doesn’t really matter because the principal balance of the HELOC is dropping so quickly. Sort of like your cash flow index chart, when we first started we paid off my car, my wife’s random student loans and we immediately freed up extra cash to throw at the line.
If you go to Bill with Truth and Equity he will tell you whether it is a good fit or not without necessarily having to pay/use his services. He likes helping people with the concept!
Interesting read! It looks like this is the perfect way to go in your situation, and has made me re-think my opinion on HELOCs. Thanks for sharing!
Hey!
It took us a while to really understand and wrap our heads around it! But now things are flowing and its a good fit for our goals! We will eventually use it to invest and save as well!
You know, HELOC has always been a bad word around my house, but you kind of have me rethinking the approach. I am 44 and still paying off student loans. Now that sucks!
Yeah it is not conventional to leverage debt, but its really just washing the debt and moving it around – sorta like cooking the books, but legally! haha. I mean banks do it, they use my savings to get a return that they keep, same concept just using it against them sorta!
Quite impressive results you’ve had with this strategy. I’ve never seen it applied to student loans, but makes sense. I’ve considered this approach for our mortgage but haven’t pursued it for whatever reason.
thanks! It works. We are actually about to apply $40,000 more in December to a student loan. Crushing the principal of the SL then dropping the HELOC as fast as possible allows us to get ahead on the interest. The next step will be to do the same to our house!
270 in total to go in student loans and house!
The Line of credit also takes out the emotional part of paying down the debt and being afraid of not being able to pay your bills if you overpay into principal. Every dollar has a use and is flexible.
I’m excited to hear about your progress. If I talk to anyone else about it they think I’m an idiot. Lol
Exactly! Its why if one month we only pay 4,000 but the next we pay too much and get yourself in a pickle, we just draw a few 100 out and we are fine. It always works out in the long run and now that my wife and I are on the back end of student loans all of our monthly minimums go to principal. Can’t wait to do it with the mortgage next.
My friends think I am crazy too… but then again paying off 300K in student loans and a mortgage by 34 is kinda crazy
I’ve been considering whether to buy a home or work aggressively on paying down my student loan debt ($157,000@ 5.75%). With real estate appreciation in my area averaging 8% per year, I’ve been wrestling with this question of how best to tackle my desire for home ownership as an investment, and also getting out of student loan debt. Please correct me if I’m wrong, but it seems to make the most sense to buy the house, pay into it aggressively to get positive equity (and allow the current appreciation rate to help), then use the HELOC strategy to aggressively pay down the student loans, then, after that is accomplished, use the HELOC strategy to pay down the mortgage. Is there a flaw in my thinking that I don’t see?
Hey Victoria,
I can relate to those student loans! You have a fairly good interest rate! But to answer your question, essentially you nailed it on the head! With an 8% apperciation, you would have the equity in a few years – in the meantime, you could put extra payments towards your student loans or house. I personally would say student loans and let your house naturally appreciate, however it really comes down to things like cash flow, credit score, etc. If it is something you want more info about, Bill Westrom at TIE is always willing to answer questions, even if right now isn’t the right time per se! [eafl id="2179" name="Truth in Equity" text="Bill Westrom at TIE"]