<h2>Posted this in the Parents section, then realized FInancial Aid was a better place to ask this question</h2>
<p>We are considering different options for spreading out the cost of college and wonder if other people have looked at the advantages/disadvantages of Plus Loans vs. HELOCs. On the one side, Home Equity loans are tax deductible and there are no origination fees. On the other side, HELOC interest rates are variable and it is scary to have one's home tied into increasing debt (although debt is going to increase no matter what). I feel we sailing into stormy uncharted waters and wonder what others have done to spread out the cost of college.</p>
<p>PLUS loans are also variable though you can lock into rates later. There are also variants of PLUS loans offered by some states, Connecticut and Mass come to mind for those, and they may have better terms.</p>
<p>It really depends on the individual situation as to which is better. For a friend of mine who was on the cusp of financial aid and who had a second one due to come into college two year after the first, she did some creative thinking. The first one took a gap year so that the two kids were only a year apart and family took out a home equity loan using it to pay for the gap year, pay off some bills, etc so that the house did not have much equity for Profile purposes. They also prepaid their state and federal taxes with home equity. It gave them just enough to nudge them into a little bit of financial aid. The following year, they did have two in college which made them very much eligible for financial aid. A PLUS loan can be taken out for college expenses paid in the past as well--need to look up exact terms, so there is flexibility that way. So you can use home equity to pay for the college, diminishing your assets each year doing that and then get back the money by borrowing through PLUS. You need to think out your situation and try to plan accordingly. It also depend on the college your student ends up going to as well.</p>
<p>Another thing to consider that if you are one of the 16.2 million taxpayers who pay alternative minimum tax (AMT) then the interest on home equity loans used to pay college is NOT tax deductable. Under regular taxes you can borrow 100K, spend it on college and write off the tax. But you lose that once you get caught by AMT.</p>
<p>PLUS interest is also tax deductible. PLUS is also variable. </p>
<p>We took PLUS and immediatedly went into repayment mode. PLUS can be consolidated while inschool and in repayment mode at a rate that will be less than the current PLUS rate. We use PLUS to manage our cash flow. </p>
<p>Maybe approaching the problem as a different word problem can give you a solution;</p>
<p>Look at College expenses as financing a Vacation Home and its extra expenses.</p>
<p>We have also Consolidated the PLUS (3 years worth) and will take an kid's senior year as a new PLUS loan and which will be Consolidated in 2006.</p>
<p>Not at all. It was a wonderful opportunity that came up, and it was a gap year that she will never forget. She loved it. And she made a few bucks in the time off, recharged the batteries, and the next year, her part of the EFC was a little more than half of what it would have been had she gone the year before. On top of the adventure she got $10K in grant money. When she went back to school, she sent a letter of her adventures and I think that gave her preferential packaging cuz selective colleges LOVE gap years. Any college counselor or adcom will tell you that right out. Especially unusual ones with a learning element in it. Learning for learning's sake. I would recommend it without a hesitation. And with so many kids taking years or semesters abroad, what's the big deal of taking a break in the middle and finishing up the lower level requirements at a cheap school, do some community service work, and then come back for two years for the advanced courses and getting a degree. This kid has saved the family over $60K (more if you include the EFC reduction from the sibling) with these decisions.</p>