28 Oct What’s the best way to make up our deficit in college savings?

Q. My sophomore just started college. After aid and scholarships, we owe about $35,000 a year. I think we’re ok for the next year but by the time he is a senior, we will be out of savings. I know there are scholarship databases but my question is whether using a home equity loan is the best option or if we should look into personal loans? Thank you.
— Mom

A. Congrats on this exciting venture.

But yes, it’s an expensive one.

Both of the options you mentioned have pros and cons, said Bill Connington of Connington Wealth Management in Paramus.

Home equity loans can have lower rates, interest may be tax deductible if used for qualified education expenses and they typically offer a fixed rate, he said.

“The bad part is that now your home is being used as collateral and it may come with some closing fees,” Connington said.

A personal loan is an unsecured loan so no there’s no risk to your home, he said. Also, these can be quicker to obtain.

But on the downside, it will probably have a higher interest rate, and the rate may not be fixed.

“I think your best bet first is to see what scholarships would be offered that can be applied for,” he said, including what you can get through the FAFSA form. “Speak with the college’s financial aid office to see what is offered and how you would go about applying. Then run the numbers and see which option is best for your financial situation.”

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This story was originally published in October 2024.

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