Navigating the financing of higher education can be a tricky game. Student loans are available and scholarships, too, but with the rising amount of student debt, some students are turning to other options for financing. You can use the equity in your home to subsidize the cost of school tuition, books and living expenses while taking graduate or undergraduate classes, even if you already have a home mortgage loan.
Home Equity Advantages
Home equity loans or home equity lines of credit, also called HELOCs, offer different advantages for tuition financing than personal lines of credit do. First, these secured loans usually offer longer terms and lower rates, both of which contribute to lower monthly payments during repayment. Second, home mortgage loans often have more flexible terms on the borrowed amount, monthly payment and repayment schedule than other loans. Finally, home equity or mortgage loans can offer tax advantages, as the interest can be tax deductible.
Types of Loans
Most loans secured with the equity of your home can be used to finance tuition payments. Many borrowers use home equity lines of credit or home equity loans to pay for college costs. You can also use traditional first mortgages for these costs, either by getting a new purchase mortgage with cash out for school or a refinance for cash out.
Considerations Before You Borrow
Taking out a new home loan or refinancing an existing home loan to obtain more cash is a major financial decision and should be carefully considered. Mortgage loans and other secured loans come with longer terms than traditional personal loans and sometimes even federal or private student loans. In addition, home equity loans use your home as security. If you cannot manage repayment, you risk losing your home to foreclosure as opposed to simply facing bankruptcy if you default on student loans or personal loans.
Reasons to Think Twice
While a home mortgage or an equity line can be a feasible method to pay tuition costs, consider the flexibility offered by federal loan repayment schedules. For example, if you work in public service for 10 years after your university education, you can have a chunk of your loans forgiven. The federal government also offers income-based repayment, by which your loan payments would be based on your income, not on the outstanding loan amount.
Based in Eugene, Ore., Duncan Jenkins has been writing finance-related articles since 2008. His specialties include personal finance advice, mortgage/equity loans and credit management. Jenkins obtained his bachelor's degree in English from Clark University.