Taking a home equity line of credit?

[disney1990]

Any financial adviser (such as Suzie Orman) would tell you to never take a home equity loan to pay for your child's college costs.

 

[JillyBean1899]

I think it's wonderful that they are paying off her student loans. We plan to 100% pay for DS's schooling, even if it means delaying retirement or going without vacations, etc.

Going without vacations I can see, but delaying/dipping into retirement money? No way. Your son can find scholarships/financial aid to pay for school ... those don't exist for retirement. Helping out if you can is one thing, but that to me would be a line I wouldn't want to cross (and would have felt horrible about if my mom had done ... which she didn't, which is why I didn't go to college right out of HS and am just now getting my AA completed at 35).

 

[tvguy]

Going without vacations I can see, but delaying/dipping into retirement money? No way. Your son can find scholarships/financial aid to pay for school ... those don't exist for retirement. Helping out if you can is one thing, but that to me would be a line I wouldn't want to cross (and would have felt horrible about if my mom had done ... which she didn't, which is why I didn't go to college right out of HS and am just now getting my AA completed at 35).

The reality of the financial aid world (loans and grants ) is, parents retirement savings is considered a lower priority than paying for college. There are exceptions for much older parents. That is why when you fill out a FAFSA, they make you add back in any tax deferred retirement contributions into your adjusted gross income.

 

[garnetandblack]

Going without vacations I can see, but delaying/dipping into retirement money? No way. Your son can find scholarships/financial aid to pay for school ... those don't exist for retirement. Helping out if you can is one thing, but that to me would be a line I wouldn't want to cross (and would have felt horrible about if my mom had done ... which she didn't, which is why I didn't go to college right out of HS and am just now getting my AA completed at 35).

I didn't say we were going to dip into our retirement, but that if it meant delaying retirement a year or so we would. 1 year of pay would more than pay for 4 years of college. We also plan to have the money saved to pay for his college in full - but if we don't we will figure it out so that he won't have a dime of debt when he graduates.

You also mentioned that you are just now getting your AA at 35. If your parents had the means to pay for your education you would have most likely had your degree at 22, right? Life/finances would have been a little easier for you. I don't plan to ever burden my child/ren with finances at all or have them worry that we don't have enough to provide for ourselves. I have parents that my siblings and I will have to support in retirement. We live frugally and way below our means to insure that we will be financially secure. 100% of my "income" goes to our retirement/investment savings (rental properties).

I don't have my degree and DH was told to leave home the day after his 18th birthday (with 6 more months of high school) so he never finished college (or really started other than the college courses he was taking his senior year). He just started back and should have his masters in 3 years with his company 100% paying for it.

I will (and already do) expect a lot out of my child/ren. Academics are a top priority in our house and my son was reading phonetically before his 3rd birthday (although I try to always make learning fun). College isn't going to be an option - he's going - even if his career of choice doesn't require a degree. If he chooses not to go he can give me the keys to his car and go find an apartment to live in.

 

[timmac]

Two other points to consider, that I don't think have been called out specifically. Paying off an auto loan with a heloc may result in a lower interest rate or a lower monthly payment, but because the payments are stretched out over a longer period of time, you'll end up paying a lot more in interest.

As for using a HELOC to pay off a student loan, my personal feeling would be against it, largely on the basis of the "never borrow extra against your home" theory. You can always make payments on the student loan, if you wish to help. But if trouble ever comes ahead, a HELOC carries risk of your home, whereas a student loan has a lot of flexibility and options.

 

[Soben]

I just have a couple of thoughts, student loans do have some advantages, so you may want to just absorb the paying for your daughter.. I'm not an expert, so please correct me if I've got anything wrong.

1. The rates are usually pretty low, consolidating can get you a fixed rate, I think.

2. They are forgivable if she works 10 years at a nonprofit. You can make the minimum payments until then.

3. They can be deferred if she goes back to school for higher ed.

4. They would count as on time payments for the benefit of her credit score.

nothing against taking a heloc, you could have that in sand by in case you needed it. But you want to make sure you can afford the highest possible payment , not necessarily the starting fragment.

good luck whatever you decide!

 

[kymom99]

At one time I took a home equity loan rather than opening a line of credit to pay for a furnace. The rate was fixed and the amount was only for what I needed to pay for the furnace, not an open line of credit. Interest was till tax deductible.

 

[Disneefun]

Clarify with your bank: Is this a traditional ARM in that, once you have the loan, the interest can be continually adjustable, or do they mean adjustable as in the rate is prime + x% at the time you take out the loan, but then remains stable after that.

We have a HELOC that we've never used but we got it to have extra cushion in case we ever needed it. Ours works like this: Let's say I take out a loan today on that line of credit and Prime is 6%. That would be my rate for the duration of the loan (plus the extra % they throw on). But it would never change. If I used the line last year and the rate had been 3%, that would be the rate I would pay until it was paid off.

They call this "adjustable," but they don't mean it in the sense that my rate would go up on an existing loan every time the prime rate jumped. They mean that if/when I decide to use the line of credit, I'll pay the going rate the day I take out the loan.

Clarify with your bank what they mean by "adjustable" because it can make a huge difference in how the loan works, and you really need to know that to make an informed decision here.

 

[SandyinMonterey]

I'm old school. I don't believe in taking money out against your house and never and APR on anything.