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#148: Using a reverse mortgage to help pay student loans


Learning that the Supreme Court has struck down the President’s plan to forgive student loan debt, you knew immediately how severe an effect that decision would have on your younger sibling’s family. A hard-working single mom, your sister is very proud of her two sons, both of whom remained focused on their studies throughout college and are now trying to launch careers (in architecture and engineering, respectively). The boys’ father has never been in a position to be of help, and the boys have been sharing an apartment in order to save money, bartending on weekends to bring in extra cash. Both began making student loan payments nine months ago, with you offering occasional cash gifts in order to ease their burden. As proud uncle, you had been closely following the “Uncle Sam” student loan forgiveness proposal. You’ve decided to step in and offer more substantial help, at least until the nephews’ earnings have increased and until their respective careers appear to be on a secure track.

As a widower with no children of your own, you are in a position to offer help to your to your nephews, but you want to be able to control the timing of the gifts. Your idea is to make a lump sum gift to each now, then continue to follow their progress. The first time, you plan to give each nephew $17,000 (the annual exclusion limit for this year) From a US News Article

on the subject, you’ve learned that your nephews can use that gift money to pay off accrued interest and/or pay down principal, and you plan to have them attribute the gift money to principal.

While you have sufficient cash reserves to fund the $34,000 gift, going forward, you would like to come up with a more long-term plan that would not necessitate cashing in investments or negatively affecting your own lifestyle. You might consider “tapping” your own housing wealth, arranging a reverse mortgage on your residence, set up as a line of credit. Withdrawals from the line of credit would be income tax-free; whatever portion of your housing wealth is not being used would be credited with growth at the same rate as the interest being charged on the reverse mortgage loan balance.

It could be that, as your nephews move forward in their careers, that their employers might offer paying off some portion of their student loans. A Provision in the Cares Act allows employers to contribute annually towards paying off an employee’s student loan.

Your sister may have experienced chagrin over the Supreme Court decision, but your nephews will be proud to call you “Uncle”!

If you’d like to see what you might qualify for with a reverse mortgage in Indiana, or to download your Reverse Mortgage Guide Click Here (and scroll down)