14 Apr Should we use home equity to pay for our kid’s college?

Q. We are trying to make decisions about the colleges our daughter have been admitted to. Most are expensive, but we’re also looking at a couple of state schools that will be way less expensive. We have set aside $150,000 in 529 plans. If we don’t want her to end up with loans, and we need more money, should we use our home equity line of credit to pay for tuition?
— Dad

A. Congrats to you and your daughter on this exciting time.

Indeed, paying for college is a huge challenge.

Many have used home equity for a shortfall in funding for college, but there are many things to consider before you make that decision, said Jody D’Agostini, a certified financial planner with The Falcon Financial Group in Morristown.

Home loans can have lower interest rates than student loans, although recently that might not be the case, she said.

“You used to be able to deduct the interest up to $100,000 on HELOCs, but now it’s only if you are using it for a home improvement,” she said. “There is flexibility in repaying the loan, and you might be able to avoid higher student loans.”

There are some caveats.

Using your home’s equity for college will reduce the equity for future needs.

“If you are nearing retirement, you need to see if this is wise to do considering your overall plan,” she said. “If you are taking out a HELOC, the rates vary, and recently have been quite high. If you borrow this way, it might impact needs-based eligibility for the student.”

D’Agostini recommends you consider other alternatives.

First, she said, look at the financial aid packet offered by each college where the student has been accepted.

“You might be able to take one of the offers and see if the college where your child wants to attend can match it,” she said.

Also, federal student loans typically have lower rates and better repayment options such as longer times. Of course, scholarships and grants should be explored first, she said.

“I would not recommend hurting your financial plan,” she said. “You should explore what is possible before committing to a long-term repayment.”

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This story was originally published in April 2025.

NJMoneyHelp.com 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.