Using a HELOC for Educational Purposes

 

As we discussed in previous articles, you can use your HELOC for almost any purpose including for paying educational expenses for yourself or your children. This article will focus on the hypothetical scenario where a HELOC is used to pay for a child’s education. Foremost, the advantage to using a HELOC Equity credit facility versus taking out a student loan is the reduction in paperwork. Student loans, as they are often subsidized by the Federal Government, require tremendous amounts of paperwork. Additionally, if your child is obtaining the loan then the credit facility that they are using to pay for higher education will often appear on their personal credit report. As we have all heard, there are many difficult stories of 22 and 23 year old people graduating college with six figures worth of debt on their credit report at the time of their graduation. Using a HELOC Equity facility can quickly ameliorate this problem for your child if you intend to pay for their higher education.

 

Student loans are typically considered unsecured loans. However, the Federal government has enacted a number of programs to ensure that the interest rates of educational loans are much lower than any other type of personal loan that is unsecured. The interest rates tied to student loans are typically lower than that of a traditional home equity line of credit. However, again, the principal advantage is that the repayment time for using a HELOC versus a student loan is much longer. This will lead to a much lower month to month payment for you versus a student loan payment in most circumstances. Additionally, the federal government provides many incentives, tax deductions, and tax credits for parents that pay for their child’s education. In many instances you may be able to write off a significant portion of the actual tuition expense as well as the interest accrued on the home equity line of credit. As always, you should always check with your tax professional or CPA when determining what tax advantages or write offs may apply to you when using a HELOC Equity facility for educational purposes.