If you’re a parent stressed out wondering how you’re going to pay for your kid’s college education, you’re not alone. Many parents struggle with this financial question. One thing a lot of parents might not know is you can use the equity in your home to help finance educational expenses. Here’s how to use a HELOC to help pay for college.
What is a HELOC?
A Home Equity Line of Credit (HELOC) is a type of loan that uses your house as collateral. It works like a credit card because it has a revolving balance. A HELOC lets you borrow up to a certain amount for the life of the loan—a time limit set by the lender. During that time, you can withdraw money as you need it. As you pay off the principal, you can use the credit again, just like a credit card.
The more equity you have in your home, the more you can borrow in a HELOC. Typically, with a HELOC you can borrow up to 80% loan to value. So if you own a $350,000 house and have $175,000 left to pay off on your mortgage, you may be able to borrow up to $105,000 with a HELOC. Because it’s a line of credit, you don’t have to borrow the full amount you qualify for—you can just borrow money from that amount as you need it.
Tuition and Fees
When it comes to college expenses, tuition and fees are usually the biggest cost. According to the College Board, the average cost of tuition and fees for the 2016-2017 school year was $33,480 at private colleges, $9,650 for state residents at public colleges and $24,930 for out-of-state residents attending public universities.
Depending on your home equity and the cost of your child’s college tuition, a HELOC may not cover the entire cost of your child’s tuition. However, it could help you make a tuition payment if you get stuck in a financial jam. For example, if you receive a tuition bill at the same time your water heater breaks down; borrowing from your HELOC could help ensure you make the tuition payment and fix your water heater at the same time.
Room and Board
Whether your kid plans to live on campus in a dorm room or rent somewhere off campus, the cost of room and board is a noteworthy expense. You could use the money from a HELOC to pay room and board or rent expenses throughout your child’s college career.
Everyday living expenses like cell phone bills and laundry are other costs to factor into the college budget. A HELOC could be helpful in paying expected bills or unexpected expenses that come up like medical bills.
You’ll want to make sure your kid has transportation to travel to and from class as well as anywhere else he needs to go like a job, trips home, etc. You can use a HELOC to buy a vehicle along with help pay for expenses that go along with owning a car like taxes, insurance, maintenance and gas.
Text Books and Supplies
According to the College Board, the annual cost of textbooks and materials for the average college student is $1,168. HELOCs typically have a lower interest rate than a credit card which makes it a good option to fund textbook expenses.
Don’t let college expenses stress you out. With options like using a HELOC to pay for college, you can get the financial help you need. Now until August 31, 2017, we’re offering a HELOC with no closing costs and a new rate lock option. Visit our website for more details. We can help you move ahead with your financial goals.