<p>House is worth $600k. Owe $150k. Whatever portion of college expenses the 529 doesn’t cover (it might cover everything, but really depends on where D goes), the HELOC will. Low rates, interest deductible, it’s a no-brainer. At least in my case it is.</p>
<p>I don’t know if anyone has advocated risking their home to pay for college. I certainly won’t risk losing my home. I view the equity in my home as an asset that will be passed on to my kids when I’m gone. So in my mind, I’m doling out a % of their inheritance early if I use home equity to help pay for college. And no, I’ve never heard of crowdfunding, but it sounds like internet-based panhandling. Thanks, but I’ll pass.</p>
<p>If you use them properly, it really isn’t ‘Risking your home’. As a general rule, don’t borrow money you can’t pay back - regardless of your equity position. If you do borrow money, have a plan to pay it back and you want a low cost of capital. Nothing reduces interest expense as effectively as collateral (and in this case a tax break).</p>
<p>HELOCs are a great tool for all the reasons listed by many above. I have had one for many years, typically without a balance but, I use it buffer large purchases - like cars - and pay it off in a few months by selling stock or whatever. I may use it for my son’s education expenses if it makes sense. I have the capital but, it is deployed elsewhere and earning more than the >3% my bank charges. </p>
<p>One thing about HELOCs that most people don’t know is that the lender can freeze the line if your equity disapears or your income picture changes. So, have a back-up plan in case it gets frozen at an inopportune time - like 3 days before tuition is due. And be warned, it will only be when credit is otherwise tight. I use margin at my broker for this purpose. Since it is a short term back up plan, the rate doesnt need to be great but, I need to KNOW the check will clear.</p>
<p>Well said, NCalRent. Thanks.</p>
<p>This could be a good option for a student who has done savings or works in good company to pay off the debts. But as article says one should check all available options before considering home equity loan.</p>
<p>A word of advice to anyone who’s counting on future income to pay off their house and/or HELOC…make sure you have a good long term disability policy. You never know what the future holds. Both DH and I became disabled in our early 50’s. One from a progressive disease, and one from a car accident. We have 2 kids in college. We would be homeless if we’d had a large mortgage or HELOC, even with very good disability insurance - since medical care is outrageously expensive.</p>
<p>Good advice, axw.</p>
<p>We were anxious about the idea of losing our house, so we’ve taken (substantial) PLUS loans instead of HELOC. But I’ve been wondering about the worst case scenario, such as with long term disability/unemployment: if we had to file for bankruptcy after the house is paid off but while we still owe on the PLUS loans, could we still lose the house? I don’t know anything about bankruptcy, but from a quick check via Google, it sounds like a bankruptcy trustee could force the sale of the house to pay off unsecured debts (like PLUS) so long as the amount of equity is more a certain amount; in my state it sounds like the “homestead exemption” is only around $35K, and we have more equity than that.</p>
<p>If the house is at risk anyway, maybe we should consider a HELOC to pay off the PLUS loans?</p>
<p>I’m NOT an expert, but if I had a paid off house, but other debt and a small income stream due to disability or long term unemployment, I’d consider selling the house and downsizing (down pricing?) well before I’d get to the bankruptcy/foreclosure point.</p>
<p>Well, it’s just my opinion, but if you feel that you need to take out a home equity loan to pay for your child’s college then that’s one example that whatever college your child chose is TOO EXPENSIVE. </p>
<p>For only a very small (can count them on one hand) amount of majors, does it make absolute sense to go to a top ranked college and pay out the rear, other than that, it makes absolutely no sense to do so. </p>
<p>Go to a college your child can afford to pay off through working part-time and taking out a small amount of stafford loans under their own name (if you didn’t setup a small college fund for them).</p>
<p>Jotucker, it may not make any sense in your case. If I borrow $50k (or more) against my home to fund my D’s tuition at an elite school, that’s my decision, and it will make sense to me. I don’t know if I’ll go that route, time will tell. If one doesn’t have the equity, or can’t afford to make payments on the HELOC, then you’re right, it would be senseless. In my case, I have the equity, and I can afford to make the payments. Thanks to axw for bringing up the issue of disability. That’s a prudent point.</p>
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<p>Good point, but my (almost paid off) house is modest - not sure how much room there is for downsizing 
I guess in the worst case scenario I described, maybe PLUS is better - I think we might be allowed to defer or reduce payments on PLUS in a situation like that (although the interest will still be accruing).</p>
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<p>Definitely a matter each family has to consider carefully, many factors there - in my case, we started down this road long before I found CC, so it’s hard to say whether we would’ve made the same choices knowing all the things we know now. But, it is what it is - we have a substantial PLUS balance, which we’re steadily paying on, and D2 has 2 more years left. By then the house will be paid off and hope to make short work of the loans.</p>
<p>What needs to happen is the government has to make student loans with reasonable interest rate so you don’t even have to make that choice. Its crazy that interest rates on a student loan is significantly higher then the home interest rates.</p>
<p>Amen to that :)</p>
<p>I think what needs to happen is students and their parents need to say “no” to crazy tuitions/fees. I think college should return back to a place to get an education, not a place to have a luxury “experience”.</p>
<p>The high interest rate for Ed loans are what the market will bear. If folks rethink the options and look for affordable options, perhaps they won’t have to figure out to finance such large amounts?</p>
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<p>I disagree with this. A house is an investment like any other. You wouldn’t necessarily say that about someone who invested in stocks and chose to sell stocks to pay for college. Most would not take out the full equity so that the house can be sold without going underwater.</p>
<p>I’m sorry about your experience, axw. I hope thing improve for you health-wise.</p>
<p>But yes, this is the greatest concern. Using home equity seems great…but it only works if 1) no one becomes disabled or dies, 2) no crash in the market occurs before you need to sell, 3) no natural disaster wipes out your home.</p>
<p>I did buy investment real estate, but we are paying them off as quickly as possible in order to sell. In my 50’s, I’m just not comfortable carrying debt on them and certainly not taking on more, on the assumption that it will be covered. So, as we begin this process, I’m praying for scholarships. I hate debt.</p>
<p>I agree that we need to say no to ridiculous tuition. And it’s hard! My daughter is looking at expensive colleges. She’s going to have to figure out how to make that happen, which she understands.</p>
<p>Thank you, TranquilMind. :)</p>
<p>@collegenj
That’s because home loans are secured and college loans are unsecured.</p>
<p>@GTalum, there’s a difference between selling stock and a HELOC. When you sell stock (or anything) you get money. When you take out a HELOC, you get debt. Debt = Risk</p>
<p>Good point axw. But, if you take out only a fraction of the equity, and you can sell the house to pay off the loan, it seems to me a small risk. I do realize there may be a big IF you can sell the house. It is certainly reasonable to consider on a case-by-case basis.</p>