Using Home Equity to Pay for College or Education Costs
Studies show that college graduates earn more money and are more likely to be able to hold a job than people who don’t attend college. CollegeBoard.org reports that in 2011, people with a bachelor’s degree who worked full-time earned $21,100, more on average than those who held just a high school diploma.
Most parents want to provide their children with any advantage they can, and a strong education can be the path by which children can gain independence and a secure future. The cost of college can be paid in three ways: before, during or after college — and the costs can be exorbitant. That is why many people investigate the option of refinancing their existing mortgage.
According to the National Center for Education Statistics, in addressing questions regarding the trends around college costs and tuition, they state:
For the 2012–13 academic year, annual current dollar prices for undergraduate tuition, room, and board were estimated to have been $15,022 at public institutions, $39,173 at private nonprofit institutions, and $23,158 at private for-profit institutions. Between 2002–03 and 2012–13, prices for undergraduate tuition, room, and board at public institutions rose 39%, and prices at private nonprofit institutions rose 27%, after adjustment for inflation.
SOURCE: U.S. Department of Education, National Center for Education Statistics. (2015). Digest of Education Statistics, 2013 (NCES 2015-011), Chapter 3.
Average total tuition, fees, and room and board rates charged for full-time undergraduate students in degree-granting institutions, by type and control of institution: Selected years, 1982–83 to 2012–13.
|Private Nonprofit & For-Profit Institutions
If you have not saved for college prior to your child’s senior year of high school, you may be struggling to pay for college now. Borrowing money for college expenses may be your only option to pay for tuition, room and board, books, travel, etc. You are not alone. Many find themselves facing this same challenge without a personalized financial strategy. CrossCountry Mortgage, Inc. can help with this challenge and, together, we can help you make smart decisions about paying for college.
If using your home’s equity is the right option for you, CrossCountry Mortgage, Inc. will help you establish a Home Equity Line of Credit (HELOC) and explain all of the details to you.
Before using your home equity, let’s look at other college payment strategies to explore:
- Scholarships and Grants — Besides academic, athletic and artistic scholarships, check online for a wide variety of unusual scholarships that are based on hobbies and interests, how tall you are, where you live, and your family roots.
- Financial aid based on low income
Earned Money and Financing
- Federal and private loans
- Work study programs
Evaluate the advantages and disadvantages of a HELOC account.
- A HELOC will give you a way to borrow money using the equity you have in your home. You establish a line of credit that gives you cash flow as you need it.
- Unlike refinancing, where the lump sum cash is considered a part of the parents’ income and savings in calculation “expected family contribution” when filling out the Free Application for Federal Student Aid (FAFSA) for federal loans and financial aid, the line of credit is not factored into income and savings until cash is taken against the line of credit. So, a HELOC will not prevent you from getting the most from federal loans and financial aid.
- Interest rates for HELOCs can be low, so it may be a less expensive option than other loans, including federal loans or credit cards.
- Interest paid on home equity loans could offer a tax deduction, but we recommend that you consult with a professional tax advisor to be sure.
- Getting the money from a HELOC involves writing a check, so it can be faster and easier to get the money than with other loans.
- Federal loans have caps on the loans depending on the student’s stage in school (e.g. first-year student versus third-year student) and may prevent the family from getting the funding they require for their student’s costs. If you have been paying on your mortgage for a long time, then the equity you have built up may allow you to borrow more than a federal loan.
- When using the value of your home ownership to pay your debt, you are putting your home at risk if you cannot repay the loan.
- There are costs associated with HELOCs. These costs should not be overlooked.
- HELOCs do not offer as much flexibility in times of job loss, medical crisis, or other financial hardship as federal student loans.
IS HELOC RIGHT FOR YOU?
If you think that a HELOC is a good option for you to pay for college expenses, CrossCountry Mortgage, Inc. is ready to help you. Contact one of our licensed loan officers today so we can help you prepare your student for a brighter future.
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