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My parents and I were running through hypothetical post law school employment scenarios and talking about what repayment will be like. They suggested that regardless of where I end up, and if the market holds, I co-sign a home equity loan on their house to pay all of my law school loans in total.

Their thinking is that if we can get a ~4% fixed rate, it will consolidate my debt and reduce the interest rate on all the loans, especially GRAD+.

Any downside to this?

0L but, (assuming you're a 0L and assuming you're talking about a HELOC) if they are willing to do this (and have the (shit-ton of) equity to do this), why not just do it from the start? I don't really see the downside, but, again, 0L.

ETAmend: Didn't have any coffee before I wrote this -- I wouldn't do it. If you are taking enough debt to the point where you need a lot of grad+ loans, this is going to be like second mortgage size. Your payment schedule will not be as flexible and might need to be paid in full a lot sooner, and it could cause a ton of strain to your relationship with your parents. Probably not worth the couple interest points, IMO.

Interesting point. I am a 0L.

One upside I see, for my parents, is that they can ensure I have the means to make payments before consigning the loan. The risk is all on me thru school and they only have to assume part of it if I am employed.

Can't see any upsides to waiting for myself though.

You can't take advantage of various govt loan forgiveness programs if, 6 months in, you get laid off.

The interest savings is cool but honestly this seems like it might put seemingly more pressure on paying of your debt because suddenly your parents home is at stake. Entering into this big of a transaction with family seems like a recipe for conflict.

Yeah, the downside is you don't get access to PAYE and PSLF.

Not looking at too much in Grad+ but not zero either. Not having the safety nets tho could definitely be a source of strain. Good points all. Thanks.

If you do take out a HE loan, you have to tell the bank its for other purposes (Home Improvement, Bill consolidation). Home Equity loans aren't meant to pay off student debt because the bank is now taking on those federal loans and the debt now becomes dischargeable through bankruptcy.
If you were to do this, you could also do a HELOC and get ~2.75. With this, only the interest is required to be paid every month, but the rate is variable.

yossarian71 wrote:My parents and I were running through hypothetical post law school employment scenarios and talking about what repayment will be like. They suggested that regardless of where I end up, and if the market holds, I co-sign a home equity loan on their house to pay all of my law school loans in total.

Their thinking is that if we can get a ~4% fixed rate, it will consolidate my debt and reduce the interest rate on all the loans, especially GRAD+.

Any downside to this?

Downsides:
1. You die or get seriously disabled your parents are stuck with your debt, which they wouldn't be under student loan plans.

2. Something goes wrong, your parents lose their house.

3. Law is not a stable career, you can not assume that you will stay in any job very long. Should you get a job after law school, you can not assume you are going to keep it for a number of years.

4. You should sign up for PAYE and make bigger payments if it is still around when you graduate. I don't think it will last forever, but it is a helpful, insurance program for those who qualify.

5. I see the stress debt puts on people who just owe the government, I suspect they would feel even more stress if their parents' house was on the line.