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Homebuilder to help millennials pay student loans and get a house—but is it a good idea?

Construction workers build a single-family home in San Diego.
Mike Blake | Reuters
Construction workers build a single-family home in San Diego.

A national homebuilder wants to help get millennials out of student loan debt and into their own homes.

Financial planning and student loan experts caution that the plan unveiled last week by Lennar just swaps student debt for mortgage debt. Buyers of Lennar's homes could receive a payment of up to $13,000 toward their student loans, as much as 3 percent of the home's purchase price, from its subsidiary, Eagle Home Mortgage.

The nation's collective student debt stands at an all-time high of $1.34 trillion, according to the Federal Reserve Bank of New York.

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"Particularly with millennial buyers, people who want to buy a home of their own are not feeling as though they can move forward," Jimmy Timmons, president of Eagle, said in a statement. "Our program is designed to relieve some of that burden and remove that barrier to owning a home."

Payments through the program can go toward loans from universities, community colleges, trade schools and other "certificate-granting programs," Lennar said but can't be used for loans parents take out to pay for a child's schooling.

Others said the program's approach is questionable.

Jason Delisle, a student loan expert at the think tank American Enterprise Institute, said Lennar's student loan payments struck him as a price cut marketed toward debt-laden millennials.

"Why not just give them a discount on the house?" Delisle said. "In theory, a rational person might be indifferent between those two things. But it speaks to when it comes to student loans, we're not so rational."

Most student loans are federal student loans, he said, which are relatively flexible compared to other loans, allowing deferment, income-based repayment and sometimes even loan forgiveness. Thanks in part to those protections, there "isn't a massive affordability crisis around student debt that people think there is," Delisle said.

Those protections disappear with a mortgage loan, though, said Persis Yu, director of the Student Loan Borrower Assistance Project at the National Consumer Law Center. Lennar's program alleviates the unsecured debt of student loans in exchange for secured debt tied to one's home, Yu said, offering a whole new set of risks.

"I think people need to fully consider that, whatever choice they make," she said.

It is unclear how the 3 percent discount will be absorbed, leaving some skeptical.

"There's no free lunch," said Allan Roth of Wealth Logic, a financial planning firm in Colorado Springs, who is not associated with Lennar. "If a for-profit company wanted to make a charitable contribution, then they would make a charitable contribution. This money has to come from somewhere."

The mortgage provider instead might be motivated to increase the mortgage price or ask for a higher initial offer than from those opting out of the deal. "It's not a discount if you charge more," Roth said.

Lennar said its contribution to a buyer's student loan does not directly increase the home's purchase price or add to the mortgage loan's balance. Still, Delisle suspects Lennar will recoup those funds somewhere.

"I'm sure Lennar is not telling their shareholders that they're losing tons of money on this deal," he said.

Lennar did not respond to USA TODAY's attempts to find out how it would absorb the loan payments' costs.

"No matter what, you have to make sure you understand the transaction you'd be entering," said Theodore "Ted" Daniels, founder and president of the Society for Financial Education and Professional Development, a non-profit that teaches financial literacy.

Daniels said he understands the appeal of the program to eager first-time homebuyers, but said it's wise to take a closer look beforehand. "Pull your emotions back and be sure you know where the dollars are going," he said.

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This article originally appeared on USA Today.