Using Home Equity For College
Evaluate the option of using home equity for tuition to cover any gaps after using student loans
College is getting more and more expensive each year. As a parent, you're probably concerned with keeping your children out of debt as much as possible while still providing them with a good education. At the same time, you don't want to dip into your retirement or emergency fund savings for tuition.
Therefore, you might be considering taking out a second mortgage and using your home equity for tuition. While this can be a helpful way to pay for college remember to carefully consider this option since you are using your home as collateral and if you default on any payments you could lose your house.
When to consider a home equity loan to help with tuition
Since home equity loans have a fixed interest rate, and that interest is usually tax-deductible, using home equity for college is often considered by parents. Before you make your decision you should first consider taking advantage of all forms of federal and state financial aid that are available:
- First, try to get as much federal and state financial aid as you can. Make sure your child has completed the Free Application for Federal Student Aid (FAFSA) so they can be considered for various forms of federal and state aid as well as any aid the school offers including funded grants, scholarships and work-study programs.
- Then, apply for as many grants and scholarships as possible since these don't have to be repaid.
A home equity loan could be a great supplement to other college funding tools. Many parents also consider a federal Direct PLUS Loan taken out in their name or private student loans where the student is the primary borrower. While it does mean your child will have loans, student loans tend to have low interest rates and are considered "acceptable" debt by many creditors and lenders.
When to use a HELOC for college tuition
You could also consider a home equity line of credit (HELOC). Like a home equity loan, you are borrowing off of the equity in your home; but the difference is you use only what you need when you need it. This is a good option to cover those extra expenses like buying books or traveling home during school breaks.
Home equity lines of credit have an adjustable interest rate that fluctuates with the prime rate. You may also have the option of applying for capped-rate HELOC for college tuition, which will not rise past a certain point. The adjustable rate can mean you end up paying more interest on your line of credit four years from now, but if interest rates drop, you could pay less.
Discover the benefits of home equity loans and lines of credit from Citizens Bank
Consider applying for a home equity line of credit when your child starts college in case you need to draw on it at some point during his or her education. This way, you can take out small amounts as needed that are easier to pay back. Another option is a home equity loan to pay everything at once and have a set monthly payment. Discuss the option of home equity for tuition with a Citizens Bank Home Loan Originator, or speak to an Education Finance Specialist to discuss other student borrowing options.