Everyday Cheapskate: Home equity vs. student loans -- what to do?

Dear Cheapskate: Twelve years ago my husband finished medical school with $170,000 in school loans. While in forbearance when we couldn’t afford the payments, it grew to $195,000. We’re back on track now and down to $112,000. That’s progress, but still so far to go. We have $140,000 equity in our home. Should we use that to pay it down faster? We have no other debts. -- Cheri R., Illinois

Oh, those rascally college loans -- so easy to get, so difficult to get rid of. But I am so proud that you finally owe less than you borrowed. That’s a big chunk, so give yourselves a tiny pat on the back. Even if you could reduce the interest rate slightly (student loan interest is already tax-deductible within certain limitations, so that wouldn’t play into your decision), it’s just not worth the risk. First, you wouldn’t be eliminating any debt, just moving it from an unsecured position to one that is secured by your home. But worse, you would put your home at risk. Mortgage lenders don’t hesitate to foreclose when borrowers fall behind. The way it is now, if you fall behind for some reason, the lender will hassle you and make your life miserable, but cannot take your home. I would rather see you forget that you have that $140,000 equity. It is an appreciating asset and possibly your only investment at this time. Leave it alone and let it grow. In the meantime, work hard, get extra jobs, live very frugally and rapidly repay this from your current income. I’ll be right here cheering you on!

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Mary invites you to visit her at EverydayCheapskate.com, where this column is archived complete with links and resources for all recommended products and services. Mary invites questions and comments at “Ask Mary.” This column will answer questions of general interest, but letters cannot be answered individually. Mary Hunt is the founder of EverydayCheapskate.com, a frugal living blog, and the author of the book “Debt-Proof Living.”