The average cost of college in the United States for a four-year undergraduate degree program is $108,584 per student, including books, supplies, and daily living expenses. In Arkansas, that number is closer to $80,000, while in Missouri, it's just over $84,000. These figures are for in-state students attending public universities. With the annual growth rate (CAGR) for tuition at 4.11%, costs continue to rise, so it's crucial to start planning how you'll pay for your child's education—especially if they're within a couple of years from beginning college. One option you may not have considered is tapping into the equity you've built in your home.
With home prices steadily climbing in many parts of the country, your home equity may be growing faster than you realize. This presents a unique opportunity to leverage that increased value to pay for college. By using your home's equity with a HELOC, you're essentially turning your home's appreciation into a source of funds for your child's education. This strategy is particularly advantageous in areas like Northwest Arkansas and Southwest Missouri, where real estate markets have experienced significant growth. Instead of relying solely on traditional methods like student loans, you can use your home's rising value to your advantage and potentially reduce the overall cost of college.
Traditional Ways to Pay for College
There are many resources out there to learn about strategies for paying for college. The truth is, that most families use a combination of resources to cover the costs. Some of the traditional resources include:
- Financial Aid: This is the foundation of college funding for many students. The Free Application for Federal Student Aid (FAFSA) determines eligibility for grants, work-study programs, and federal loans.
- Scholarships: Scholarships are free money! They don't need to be repaid and are awarded based on various criteria, including academic merit, athletic talent, community involvement, and financial need. Encourage your child to apply for as many scholarships as possible.
- Grants: Like scholarships, grants are free financial aid. They are typically need-based and awarded by federal and state governments as well as colleges and universities.
- Student Loans: Loans are a common way to bridge the gap between college costs and other financial aid. Federal student loans generally have lower interest rates and more flexible repayment options than private loans.
While these methods are essential for financing a college education, they may not be enough to cover the total cost. This is where a Home Equity Line of Credit (HELOC) can be a valuable tool.
Using Home Equity to Pay for College
As mentioned earlier, rising home values can work in your favor. If you're a homeowner and have built up equity in your home, you may be able to use a home equity line of credit to help pay for college. This can be a particularly attractive option if the thought of relying heavily on student loans feels daunting and you want to minimize your child's student loan debt or avoid it altogether.
What is a HELOC and How Does it Work?
What is a HELOC and How Does it Work?
In "What is a HELOC and How Does It Work?" we discussed HELOCs as an affordable funding option. Unlike a credit card, a HELOC is a revolving line of credit secured by your home. It works like a credit card, allowing you to borrow money as needed up to a pre-approved credit limit. Typically, HELOCs are granted for up to 80 to 85% of the equity in your home. CS Bank may allow homeowners to borrow up to 100% of the equity in their home, providing certain conditions are met. Ask a lender for details.
HELOCs tend to have lower interest rates than unsecured loans. Like credit cards, you only pay interest on the amount you borrow; you can repay and re-borrow funds during the draw period. This flexibility makes it a good option for many reasons, such as debt consolidation and ongoing expenses like college tuition.
How to Use a HELOC to Pay for College
The process of using a HELOC for college expenses is straightforward. Start by applying for a home equity line of credit online.
You will need to provide documentation of yourself (name, address, and social security number), your income, and details about your home. During the process, your lender will also perform a credit check.
CS Bank offers a Home Equity Line of Credit Calculator, which can help quickly determine how much of a credit line you may qualify for based on the value of your home and the principal remaining on any outstanding loans.
Once your HELOC is approved, you can draw funds as needed to cover tuition, fees, room and board, and other related expenses. As you make payments, your available credit replenishes, allowing you to re-access funds throughout the draw period. This can be helpful for covering expenses over multiple semesters or even years.
HELOC vs. Student Loans: Key Considerations
| Feature | HELOC | Student Loans |
|---|---|---|
| Borrower | Parent/Homeowner | Student (often with a parent as co-signer) |
| Interest Accrual | On the amount borrowed | On the entire loan amount |
| Repayment Period | Typically 10-20 years | Typically 10-30 years |
| Tax Deductibility | Interest is not tax deductible* | Interest may be deductible* |
| Collateral | Your home | None |
| Interest Rates | Potentially lower with good credit and equity | Varies depending on federal or private loans |
*Consult your tax advisor
It's important to weigh the pros and cons of each option carefully. While HELOCs can offer lower interest rates and flexible access to funds, they also put your home at risk if you can't make the payments.
Ways Your Student Can Contribute To College Expenses
Even if you decide to use a HELOC to help pay for college, encourage your student to contribute and take ownership of their education expenses. Here are some ways they can help:
- Choose an affordable school: Consider in-state public universities or community colleges, especially for the first two years.
- Explore work-study programs: These programs allow students to earn money while attending school.
- Work part-time: Even a small part-time job can help offset some expenses.
By working together and exploring all available options, you can create a plan to finance your child's college education while minimizing debt and setting them up for a successful future.
Pay for College with a HELOC from CS Bank
At CS Bank, we understand the challenges of paying for college. We're a full-service mortgage lender serving Northwest Arkansas in Eureka Springs, Berryville, Harrison, Huntsville, Holiday Island, and Southwest Missouri in Cassville. If you're considering using your home equity to help fund your child's education, we can help you explore your options.
To learn more about all CS Bank has to offer, contact one of our experienced mortgage lenders to help you understand the HELOC process and determine if it's the right fit for you, or visit your local branch location. We're committed to helping you find the best solution to meet your family's needs and make paying for your child's college easy.