<p>Is taking out a home equity loan better than student loans? I am not sure what I am going to do but do not understand the workings of an "open line of equity".</p>
<p>Probably depends on your personal circumstances, type of loans and interest rates. For instance if my D is offered any subsidised loans we will have her take those before anything else. Interest free for a few years is better than anny interest rate.</p>
<p>Home equity loan: borrow the money right now and pay it back on a payment schedule. Kind of like a car payment.
Equity line of credit: you have an amount you can borrow against and pay back as you want. Then you can use it to borrow from again and again. There are many variations of how long it is good for and when you have to pay it off. When you don't use it there is no fee. You don't have the hassle of applying for a new loan every time you want to buy something, and you have the freedom to pay it back as you want (as long as you make the minimum payments during the payback period.)
I do not know that it is "better" than a student loan. I think it depends on your situation - and also the current rates available.</p>
<p>It does depend on the deals you can get and which fits into your financial picture. I personally prefer the student or PLUS loans because I don't like the loss in flexibility I would get with the home equity loan. If you need money for things other than education, you cannot get an education loan, but you can tap that home equity. So I would prefer to leave that intact in case of other emergencies. If the education loans are ornerous, I still can turn to home equity, but you are limited going the other way around. If your home equity is edging to a point where it may affect your student aid, it might be wise to tap it so that you do not go over protection limits.</p>
<p>Do you sit and wait til pkgs come in from the colleges before scrambling around and going to banks to figure out how much they'll give you for loans. Or do you try and find that out beforehand. Problem then is that you don't have a clue yet how high the loans will be in the pkg. My fear is that our EFC is way higher than we can afford and if the college only meets aid to the EFC, I don't know what a financial institution will deem reasonable to give us in student loans and parent loans. I can't imagine us (the parents) taking on $10k/year loan if the student is only allowed $5k/year for example. Is there a limit to what a student can borrow? My nerves are frayed waiting for the pkgs to arrive so I can either be relieved that I'm being overly stressed or I won't be able to afford all the loans.</p>
<p>I would see what is available locally so that you are prepared. Most colleges include a brochure or list of loan sources, but you should have a basis for evaluating them. More importantly, you need to figure what you can afford, and what commitment you want to make. It's better to do this now so you can make an informed decision backed up with numbers, goals, etc. You should also try to determine what kind of debt your student should take given goals, the opportunity offered at a school vs another, etc. It'll make your nerves less twitchy, if you have all of your ducks in a row and can justify your decisions once the packages arrive. That time is often charged with high emotion which can color a rational decision.</p>
<p>Be careful....we have a home equity line of credit. What happens is that each month interest only comes directly out of the checking account. Meaning it is easy to not pay the principal. If you go with a line of credit, you need to set up your own payment schedule and pay some principal each month. On ours, you have to go into the bank and tell them "I want to make a principal payment."<br>
The home equity loan or line of credit interest is probably a tax deduction. Ours is but each person should check with their own accountant. A straight loan is not, for instance a car loan. I do not know about a federal student loan...</p>
<p>Thanks folks. As far as loans go, when do they have to be paid back?</p>
<p>If a parent takes out loans, do you start paying them while the student is in college? I have heard of some like that or maybe you pay the interest. I really have no clue about how the loans work.</p>
<p>It depends. And when you take out a loan you will get many, many maiings forever offering you refinancing deals and terms that will boggle your mind. You won't need to buy crossword puzzle or sudoku books for entertainment with those things to run your numbers through. LOL</p>
<p>Sophie, if you have good credit, then you will be offered a PLUS loans up to the full amount of your child's cost of attendance, less any financial aid you have received. So the one thing you can do early on is have a PLUS lender run a credit check. Other than that, PLUS loans and student loans don't involve much paperwork at all -- the school generally has several lenders they work with, and they give you a choice -- and you don't have to document income or any of that other kind of stuff generally needed for a loan app. It's pretty painless as far as the loan origination goes.</p>
<p>Janesmom, with a standard PLUS loan your first payment is due 2 months after the spring semester's disbursement, generally in February or March of the first year of college -- so basically you get the first 6 months or so free (no interest either) before you have to start paying back. Your payments include principal and interest. If that is a hardship, then there are other types of loans you can work out. At current interest rates, you pay about $100/monthly for every $8000 you borrow -- there are some lenders that offer a reduced interest rate if you arrange for automated withdrawals from your checking account, which will increase your borrowing power somewhat.</p>
<p>Also, depending on your income bracket, you can deduct student loan interest from your taxes. (I think there is a phaseout as income goes up).</p>
<p>So then, say you borrow the full amount for the entire year, in Feb or March you start to pay it back then what do you do for the second semester? Do you just keep borrowing and it all compounds until the kid graduates. </p>
<p>Is the game plan to borrow and payback, borrow and payback as you are going along? For how many years does a PLUS loan need to be paid back?</p>