{"id":15688,"date":"2022-12-22T08:13:39","date_gmt":"2022-12-22T14:13:39","guid":{"rendered":"https:\/\/www.fitbux.com\/articles\/?p=15688"},"modified":"2023-01-03T15:27:18","modified_gmt":"2023-01-03T21:27:18","slug":"student-debt-vs-mortgage-debt","status":"publish","type":"post","link":"https:\/\/www.fitbux.com\/articles\/student-debt-vs-mortgage-debt\/","title":{"rendered":"Student Debt vs Mortgage Debt"},"content":{"rendered":"

Student loans and mortgages are forms of debt. However, not all forms of debt are created equal<\/a>. In this article, we compare students debt vs mortgage debt by highlighting 3 differences you should know.<\/p>\n

Understanding these differences are key if you are trying to decide which debt to pay off first<\/a>.<\/p>\n

Type of Debt<\/h2>\n

Student debt is considered unsecured debt. Unsecured debt does not have collateral i.e. they aren’t backed by an asset.<\/p>\n

Therefore, they usually have higher interest rates. Some other examples of unsecured debt are things such as credit cards and personal loans.<\/p>\n

Mortgage debt is considered secured. Secured debt is backed by an asset. What this means is if something happened and you can’t make payments, the lender can take your asset.<\/p>\n

This is important to understand because when you are developing your financial plan, unsecured debt is less risky to have although it is at a higher interest rate. I.e. its more risky to the lender, less risk to you.<\/p>\n

For example, if you default (don’t make your payment) on unsecured debt such as a student loan, the worst that can happen is wage garnishment<\/a>.<\/p>\n

If you default on secured debt, the lender will take the asset. For example, if you do not pay your mortgage debt payment, the lender will take the house.<\/p>\n

Interest Rates<\/h2>\n

Interest rates for both federal student debt and mortgage debt are determined differently.<\/p>\n

Federal student debt rates are set by the Department of Education and then Congress passes them into a law. According to the Congressional Budget Office (CBO), the rates are set each year<\/a> in the spring and it’s based on the 10-year Treasury notes plus a fixated increase.<\/p>\n

The formulas for each, according to the CBO are listed at:<\/p>\n