The best college borrowing options

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Q. I have two kids in college. We don’t have enough for tuition, so we can take from a home equity loan, take a student loan, borrow from cash value life insurance (but that won’t be enough) or take from a Roth IRA, which I can I can do without penalty. What’s the best choice?
— Empty pockets

A. You do have many borrowing options, and each has different consequences.

Stephen Craffen of Stonegate Asset Management said he doesn’t recommend borrowing against your life insurance. And although you are able to make withdrawals from the Roth IRA penalty-free, he also advises against using your retirement savings.

You’d be taking that money out of your long-term plan, and it’s money that can never be replaced.

With the remaining two options, interest rates come into play, Craffen said.

“It is not uncommon for student loans to have a 7 to 8 percent interest rate,” Craffen said. “Home equity lines usually come with more reasonable rates, but they do fluctuate with the market. They are very low right now, but depending on how long it takes to repay the loan, this could change.”

He says if you’re able to secure a student loan with a low, fixed interest rate, that would be his first choice.

“It will help your child build their credit and repayment doesn’t begin until after graduation,” he said. “If the rates are high or variable you should consider the HELOC.”

Just make sure you don’t forget that some home equity lines of credit only require interest payments, while others require principal and interest. Plus, there could be unintended consequences that impact financial aid.

Jerry Lynch, a certified financial planner with JFL Total Wealth Management in Boonton, also prefers the student loan option, calling it an investment in the future.

Home equity is an option, he said, but he has concerns about rising payments when interest rates go higher.

He said to leave your retirement plans alone.

“Never take funds from a retirement plan to pay for college,” Lynch said. “You can borrow for college, but not to retire.”

Finally, and this may be too late for you, Lynch said you should have considered less expensive colleges because now you’re somewhat stuck.

He recommends starting to consider payment options and what you can afford — and having these conversations with your kids — several years before they enter college.

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This story was first posted in December 2015. presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.