<p>We have savings to help with our daughter's first year of school but will need to borrow for other 3. Is it more beneficial to use a home equity line of credit which we can later refi into a 30 year mortgage or take the Direct Plus which will be higher rate and shorter term? She will probably be going to a CMU. So far she has only received $14,000 in scholarships and grants but our EFC is only 26,000 so we are appealing with a better package that we got with RPI where we would only have to pay $25,000 per year.</p>
<p>We are in similar situation with having enough for the first year but having to borrow for the next 3, and I have been asking myself the same question I! GMTA? ha, ha</p>
<p>There have been other threads like this in the past few months. Personally, here are my issues:
Down sides:
- Our heloc which has an amazing rate of 3% will run out in about 2 years at which point it will have to be refinanced. What will be the rate and terms then? I am planning on calling our bank to get more info.
- The rate is variable; that’s a gamble. Will the rates rise??? Big question mark. </p>
<p>Up sides:
- low rate = lower overall cost and monthly payments
- flexibility; can pay schools on their monthly payment plan (no interest charged from school) with credit card (gets point; we have great cash-back cards) and then use the heloc to payoff the credit card. Basically it’s just moving money around.</p>
<p>Thoughts and feedback?</p>
<p>We like to use our HELOC to finance educational expenses. Interest rate is everything - it’s’ so much lower on the HELOC, although as upstatemom mentioned, the risk is that it can go up. </p>
<p>Also, if we get ahead on finances, we put the money toward the HELOC balance until we need the money, which further reduce the interest charges.</p>
<p>I wouldn’t consider HELOCs safe money as banks have been pulling them out from under people - with little notice - for several years now. But if you always have the option of replacing a HELOC with a Direct Plus loan if that happens, then you can take advantage of the lower interest rates while they last.</p>
<p>I’d use a credit card in a heartbeat but my son’s school charges a 2% fee on top of the payment, which negates the 1% cash-back I’d receive.</p>
<p>Vballmom-- good point about the credit card charge. When my D figures our where the heck she is going, I’m going to check that out.</p>
<p>Yes, this topic has been discussed at length, but it is very important.</p>
<p>Although we’ve been tempted at times to switch from a Parent PLUS to HELOC, we’ve stayed with the Dep’t of Education PLUS loans, and here’s why: when home values were at their top in 2007, there was plenty of equity & a HELOC for this purpose was, in the parlance of that mortgage guy with the Southern accent, “the biggest no-brainer in the history of Earth”.</p>
<p>Fast forward to the present where our home value has taken a haircut of 30%+. Many areas around the country are worse, putting homeowners desperately upside down on their home loans. Where someone with a HELOC or actually a refinance with their kid’s college loan tacked onto the mortgage was in good shape not even 4 years ago, they’re screwed now if all that equity is gone.</p>
<p>Even though rates are definitely higher at 7.9%, there is flexibility with payment. Depending on who the Dep’t of Education farmed the loan out to, it is relatively simple to change the terms of payment, or to get a deferral if you have multiple college loans. That’s a little different than what happens if you miss a mortgage payment or three.</p>
<p>So…bottom line, I would say that a HELOC would be the way to go only if there is plenty of equity in your home, even after this decline, and your employment situation is stable. Because the way things look, home values could still drop another 20% or so.</p>
<p>I guess I’ll make my decision sophomore year. My head spins when I see some people not happy getting $35,000 offers from schools. I would be happy to get close to my EFC. I thought my daughter did well on SATs, Verbal: 750 Math: 710 Writing: 800, good grades in hard subjects, lots of out of school activities and summer experiences. I thought we would get more aid. My husbands take home barely covers bills anymore let alone finding extra for college or more loans.</p>