<p>Am I missing anything in thinking the line of credit is a better deal due to the tax advantages? I will have two sons in college this fall at a total out of pocket cost of about 24K per year. (I love merit aid and need based aid or no way USC would be on this list)</p>
<p>I have 16K of this covered from wages but will be about 8K short per year and I need a pocket to balance out the cash flow since the tuition bills hit all at once.</p>
<p>Thanks for any thoughts</p>
<p>PLUS Loans: Interest is tax deductible...unless you make too much money. Payments can be deferred if situation is right. Depending upon credit, interest payments can be lower. The current interest rate is 8.5%. PLUS Loans can be consolidated...which means you pretty much reduce your interest rate at consoldiation beacuse Consolidated PLUS loans are capped at 8.25%.</p>
<p>Drizzit, do you already have a HELOC or would you have to apply for one? If getting a new one, you need to factor in loan origination fees and costs (appraisal, title search, etc.) -- it can be pricey. Also many have penalties for prepayment- something to consider if there is any likelihood that you might sell or refinance during the period that you could get assessed a penalty. </p>
<p>Also, the interest rate on a PLUS loan is fixed; most HELOC's have adjustable rates. </p>
<p>On the other hand, payments may be lower for a HELOC, as they are not calculated to amortize (i.e., pay off the full debt) within a set period. That can leave you with a large debt at the end of the loan period, but of course you can sell or refinance when that time comes.</p>
<p>Thank you drizzit for starting this thread. DH and I are also wrestling with this situation; we're also thinking of an HELOC because we do need to do some work on the house now; also my job situation is dicey and we'd like to get approved now although we may not need to take $ for tuition until DD's junior year.</p>
<p>NikkiiL; you stated PLUS interest is deductible unless you make "too much money"--elaborate, please!</p>
<p>I, too, would like to have more info on the deductibility of PLUS loans.</p>
<p>From IRS website:</p>
<p>What are the limits for deducting interest paid on a student loan?</p>
<p>The maximum deductible interest on a qualified student loan is $2,500 per return. If you are a taxpayer whose return status is married filing jointly, you are allowed to deduct the full $2,500 only when your modified adjusted gross income (MAGI) is $100,000 or less. If your MAGI is more than $105,000, but less than $135,000, the amount of your student loan interest deduction is gradually reduced. The instructions for Form 1040 (PDF) show you how to compute the deduction. If your MAGI is $135,000 or more, you are not able to take any deduction.</p>
<p>For those whose filing status is single, head of household, or qualifying widow(er), the full $2,500 deduction is allowed for MAGI levels equal to or below $50,000. For MAGI between $50,000 and $65,000, the deduction amount is gradually reduced. The Form 1040 Instructions show you how to compute the deduction. If your MAGI amount is $65,000 or more, there is no deduction.</p>
<p>There is no deduction if you file as married filing separately, if you are claimed as a dependent, or if the loan is from a related party or a qualified employer plan. For more information, refer to Publication 970, Tax Benefits for Education, Chapter 4; Tax Topic 505, Interest Expense; and Tax Topic 513, Educational Expenses .</p>
<p>here are the basics
<a href="http://www.irs.gov/publications/p970/ch04.html%5B/url%5D">http://www.irs.gov/publications/p970/ch04.html</a></p>
<p>here is the info on the affect of income on the deduction
<a href="http://www.irs.gov/publications/p970/ch04.html#d0e5127%5B/url%5D">http://www.irs.gov/publications/p970/ch04.html#d0e5127</a>
The amount of your student loan interest deduction is phased out (gradually reduced) if your modified adjusted gross income (MAGI) is between $50,000 and $65,000 ($105,000 and $135,000 if you file a joint return). You cannot take a student loan interest deduction if your MAGI is $65,000 or more ($135,000 or more if you file a joint return).</p>
<p>oops, cross posted! </p>
<p>We also have been talking about this. also one relative did some sort of switch around -but has no kids-between 0% interest credit card and HELOC. I *think had high credit debt and was offered 0% for life. Used HELOC to pay credit bills, then paid HELOC with the 0% for life cards?</p>
<p>Yeah, each person really has to examine their own finances to see which type of loan is best for them. But, when examining this issue, they need to look at all of the information in great detail before coming to a decision, as making a rash decision can mean financial woes for years to come.</p>