The rising cost of a college education is old news. Parents who had hoped to pay for higher education for their children are facing daunting tuition figures that often can’t be covered by their savings. While the first and best option is always to peruse scholarships, grants, and need-based aid – none of which require repayment –additional loans are often needed. One excellent option to consider is a Home Equity Line of Credit, or HELOC, through your credit union.
The first thing to understand about using a HELOC is where it stands in the pecking order of loans used for education. The interest rate on most HELOCs is higher than the interest rates on federal student loans, but lower than most private education loans, so compare interest rates and exhaust your federal options first.
One factor to remember is that a Home Equity Loan is not the same as opening a Line of Credit to pay for student expenses. A Home Equity Loan can have a limiting impact on your need-based financial aid while a Line of Credit will not, since net home equity is not part of the federal need equation.
Once you have decided to open a HELOC, make sure to account for the fees associated with the process and talk to your credit union to get the absolute best deal. A real benefit to using your HELOC to pay for tuition is that the interest you will pay on the line of credit is normally fully tax deductible, whereas a private student loan is not!
As with all borrowing, make sure that you understand all the factors in order to make an informed decision. Having such low interest rates available to you for a HELOC is just another one of the many ways we are proud to serve our members, so please contact us to learn if this is the right loan option for you!
*Please consult your tax professional for advice on the tax benefits of a home equity loan to find out if it is right for your situation.