The interest rate on the parent plus loan is so high. What other options do parents seek? I’m considering a home equity line of credit, not sure of any other routes. Please share!!
Home equity loan interest rate are much lower as it is a secured loan, go for it if you can.
I think this is a personal family decision…and it also depends on the amount of Loan money you need.
We flatly refused to use home equity…and therefore our home…to fund college. Period.
But then, we would not have taken a Plus Loan for anything over maybe $2000 a year.
If you are looking for a lower rate, home equity might be better…but do check the provisions for that loan. Many home equity LINES of credit have variable interest rates…so that has the potential to go UP.
Also…home equity loans start repayment immediately…while Plus loans can be deferred until after your kid graduates.
Check the policies of both for loan forgiveness in the case of death or disability of the borrower or the student. And/or find out about insurance policies that could cover those instances.
It really is a personal decision. Some people take a home equity loan, some borrow against 401k, some stop contributing to the 401k. Sometimes it’s possible for a parent who hasn’t been working to return to the work force half or full time.
Personally, I’d do the home equity over the other options, but would also consider a second job. My employer was matching 401k contributions at 10%, so not only would I lose the tax benefits, and the retirement income, I’d also lose the 10% match. I wouldn’t stop 401k contributions or borrow against my account.
But first I’d make sure the school is affordable. It’s okay to borrow a little, or to work a little extra, but needing to borrow large amounts (if my kids had also maxed out their loans) wouldn’t be something I’d do.
Hi, @thumper1 can you elaborate as I am researching for Home equity line of credit…
Say can I ask for the line of credit for $100000 (assuming I have equity in the house) with a draw period of 5 years and then begin to repay at year 6?
Sorry, I am just begin reading and may not know what I am asking 
Are you the parent or student? In some threads you sound like one, but in some you sound like the other. Sharing an account makes it difficult for posters to offer good advice.
Is this for the student with a 2.5 GPA? I wouldn’t borrow against my house for college, esp. for a student who struggles academically. How much can you contribute without borrowing? Does you your son have any options that wouldn’t require you to take out loans?
My HELOC, which I use for major projects for the home rather than college, requires a monthly payment of at least the interest. I don’t know that it’s possible to defer. Also going to point out that while it iused to have a very favorable rate, rates just went up.
We have a home equity LINE of credit. Repayment starts IMMEDIATELY after one takes money and uses it. So…if you take $25,000 for year one NOW…you will start repayment of the interest immediately. You cannot defer home equity line payments on the interest until 5 years later.
Now…your principal will remain untouched if all you pay is the interest. You can pay that off when you want to…within the terms of your home equity line.
You need to VERY clearly understand the provisions of YOUR home equity line of credit. If you use this…
- You are borrowing against your home.
I would strongly suggest you get life insurance for both parents if you do this.
- Home equity lines DO have limits in terms of how long they remain open...and at the end...you MUST pay in full...but you might be able to take out another line to do so...if you have the equity to do so.
I’m sorry…but personally, I think it’s risky business to fund LARGE amounts of college costs using your home as equity. What happens if your heating system dies? Or some other expensive home need comes along?
Anyway…my point is…you need to understand the TERMS and repayment structure for YOUR home equity line…if you choose to do this.
No. Most loans require you to begin making payments within 60 days of it being funded. Student loans through the government (including Plus loans) do allow for a deferral while the student is in school under the theory that all additional funds will be directed toward college needs as they come due, so you are borrowing less.
I love HELOCs. I think they work great as a piece of an emergency fund and for small short-term loan situations. However, not a huge fan to use any variable rate loans for longer term situations.
Although you probably need to make some mandatory payment every month, there’s nothing stopping you from withdrawing a similar amount from your HELOC. For example, you take out $20K from your HELOC and you need to pay $100/month. So, every month I withdraw a $100 from my HELOC, put it in my checking and let the bank automatically withdraw a $100 from my checking for the HELOC. I believe the net affect is the same as not paying the loan off right away. Obviously you can’t do this forever, but you can for a few years. It’s possible that initial $100/month goes up a bit over time when you do this, but of course you can then withdraw a little bit more every month.
Not all HELOCs are run like checking accounts and allow withdrawals every month. I worked for a company that only allowed 5 withdrawals during the term of the loan (all were closed end loans, not revolving).
I just don’t think there would ever be one that allowed no payments for 5 years, unless it ended with a balloon payment. If interest was compounding all that time, I can’t imagine a payment plan that would ever have the borrower reducing principal. You’d have to capitalize all the interest at the beginning of the repayment, which is basically what a student loan does (the interest isn’t compounded during the loan, but there is a one time compounding when the payment plan starts).
Agree not to go into deep debt for a 2.5. Partly because of the financial risk and partly because there must be other options than a school you can’t afford, while the kiddo matures and finds his pace.
We did take Parent Plus and did know how we could repay it, from current income. We were paying the full amount due monthly. (These repayments start roughly 6 months after the semester date they’re disbursed.) No deferral for us, that’s just delaying the pain. And anyone who needs to defer may be getting in over their heads, in the first place.
That’s what concerns me: if OP is asking about deferring the repay, it sounds like he/she can’t afford this.