Ways to Pay for College Tuition: Home Equity Line of Credit
With the rising costs of college tuition, you’re probably wondering how you can help your children pay for school. Even if you’ve been saving since they were young, you may not have enough put away to cover all their expenses. You can seek additional funding by having your children apply for available scholarship and grant opportunities as well as federal and private loans. However, if this isn’t enough to cover everything, including room and board, tuition, books and travel costs – there may be another option to make up the difference.
Cover the gaps by paying for college with a home equity loan or line of credit
After you’ve explored typical college financial aid opportunities through the free application for federal student aid (FAFSA) and private loans, consider a home equity line of credit (HELOC) or loan to cover expenses beyond college tuition.
- Home Equity Line of Credit: A HELOC borrows against your home’s equity. With a HELOC you can borrow only what you need when you need it during a set period of time (the draw period). This option allows you to borrow in periodic amounts that may be easier for you to pay back throughout the draw period or after, which may coincide with your children’s graduation. HELOCs are not only helpful when paying for college; they can also be used for those extra expenses you may not have budgeted for. Keep in mind home equity lines of credit have an adjustable rate, which fluctuates with the prime rate. If you’re concerned about fluctuating loan rates, consider a Capped-Rate HELOC, which has rates that fluctuate, but will not exceed a fixed rate.
- Home Equity Loans: These loans, sometimes called second mortgages, also borrow against the equity you have built up in your home but have a fixed interest rate and are usually tax deductible so it’s a great option for parents. However, you should be cautious when taking out a second mortgage to pay for college tuition and expenses as you are putting your home up as collateral.
Apply for a home equity line of credit when paying for college
Once your children have begun applying to colleges, apply for a home equity line of credit. You can draw from the HELOC while they are in school for as much as you need to cover college tuition. Plus, since it’s a revolving line of credit, you can borrow, pay it back and borrow again as needed within the draw period. This option might be particularly attractive if you have more than one college-bound child. Talk to your local banker to determine which option is right for you.