Going to college costs a lot of money. For individuals without the savings to cover the astronomical cost of college these days, tapping into home equity via a home equity loan is a very attractive option. In Q2'24, Americans were sitting on $35.08 trillion in home equity. However, the most appealing choice isn’t always the best one for your overallღ finan๊cial well-being.

Pros and Cons of Using a Home Equity Loan to ꦑPay for College

Pros Explained

You can borrow more money using a home equity loan than you would with 澳洲幸运5官方开奖结果体彩网:student loans. Thi𝄹s means you can give yourself a bigger cushion 🌌for unexpected expenses without using your own savings to foot the student's college bill.

澳洲幸运5官方开奖结果体彩网:Home equity loans are often cheaper than other forms of debt. Since they're secured by your home, they usually have lower 澳洲幸运5官方开奖结果体彩网:interest rates, which saves you money in the long run. If you want to provide for your child’s education, a home equity loan may be the only way for you to come up with the large lump sum needed for a semester’s tuition.

Although you're assuming the debt, you give your child a debt-free start after they graduate. You may be able to work out something when they get their first job to help contribute to repaying the home equity loan.

Cons Explained

You put your home at risk by borrowing to pay for your child's education. If your financial situation changes—you lose your job, your pay drops, your spouse/partner dies, or you have unplanned emergencies—you may not be able to repay the loan. The lender may begin 澳洲幸运5官方开奖结果体彩网:foreclosure proceedings.

You're adding to existing or assuming new debt. This can put a major dent in your financial situation, especially if you're close to or already retired. It can also be a burden if you don't have as much income as you did in the past.

You're also taking on additional debt for someone who may not finish their studies or someone who may take longer to complete their education. The latter situation can lead to additional costs and expenses.

Alternatives to Using a Home Equit𒊎y Loan to Pay for College

Paying for college can be tricky, especially with today’s extremely high costs. If you still have time before you need to pay for college, starting a 529 plan now and putting as much away as possible can put you in a better spot by the time the first tuition bill is due. The potential student may want to consider going to a more affordable school, getting their general education requirements through a cheaper community college first, and applying for every scholarship opportunity available. 

If you are about to become an empty nester, then selling your home, downsizing to something smaller, and using some of the proceeds to pay for college can be a way to leverage your home’s equity without taking on additional debt. 

While 澳洲幸运5官方开奖结果体彩网:student loans can have shockingly high interest rates, they typically don’t become due for payment until six months after the student has graduated—and some loans, such as subsidized federal direct loans, don’t accrue interest during that time. While your student is 澳洲幸运5官方开奖结果体彩网:still in school, you can start paying on their loans if you want to help them pay for college but don’t have the means to do it up front. Payments made while they are still in school will be applied directly to the 澳洲幸运5官方开奖结果体彩网:principal and will help them pay off their loans faster after graduation.

The Bottom Line

Paying for college has become astronomically unaffordable over recent years at the same time that home equity has skyrocketed. Taking out a home equity loan to pay for college can be an attractive option, but consider the risks—namely, that you could lose your home to foreclosure if you can’t keep up with payments before signing up for the loan. There are many ways to make college more affordable, so be sure to exhau🌳st all options before taking out a home equity loan to pay for it.