Traditional College Loan or Home Equity Loan

Hi. This will be the first of many posts for me.
I’m grappling with whether to borrow a new loan or draw from heloc. Heloc % is 3.5, traditional seems to be @ 6.5. Any feedback on pros & cons of either?

Are you able to contribute anything? How much are you looking to borrow? Are there any affordable options with a student Stafford loan, small parent contribution, and merit?

No cash savings at all. Probably looking to borrow 40k. There was merit but not enough, I guess everyone says that.

We haven’t even look at student loans yet.

$40,000 total or per year? Are there any affordable instate options?

40K total, or 40K for just one year? If you have no savings, then 40K per year would not be a wise financial decision. Make sure you have a four year plan to pay for college. (Maybe even 5 – check the school’s graduation rate!) Do not commit to a school you cannot afford.

Most schools will write up a financial aid offer that includes the basic federal student loan – you didn’t get that? Did you apply for aid?

In general, the first question to ask is who should be responsible for the debt?
– The student - a federal direct student loan (max 5,500 for freshmen)
– The parent - a heloc or other parent loan
– Both - a private student loan that student signs and parent co-signs. (Only student loan available after that 5,500 federal loan)

Then, find the best financial option for that category

For that amount, and if you already have it set up, the home equity loan is a better deal. Cons are obvious - you are mortgaging your home and if you don’t pay, your home is at risk. If you do pay, you might be able to get a tax break (no idea how that works with the new tax laws).

If you take a parent plus loan, there are some benefits if you or your child dies, but no one wants to get out of a loan under those circumstances.

If you don’t have cash savings and you take the HELOC, what happens if you lose your job and need a cushion until you get another one? You’ve already tapped your home equity, you’ve got no salary coming in-- this doesn’t sound like a good plan at all.

What are the options on the table that are affordable with just your student’s federal student loan (the 5.5K for a Freshman)? Let’s start there.

Our cost would be 40k for freshman year at the privates, including other fees that the school estimates.
There are in-state options that we’d be expected to pay 100% based on our efc. We’d still need loans.
The basic student loan is $5500 (something like that) appears on the fa letter.

Wouldn’t we be in trouble if we lost a job regardless the it’s a heloc or private/student loan? Are there special protections with loans for college?

I’ll look into the parent plus loan. It just seemed the the heloc would be easier. Already in place, no application, etc.

$40,000 a YEAR in loans?

My opinion…do NOT do this…just don’t. Not for undergraduate school.

Find a more affordable college.

If you have no savings, clearly you’re already operating too close to the line. After the first year of a PP, you’d be paying almost $500/month. That’s money you don’t have now. By the fourth year, almost 2k/mo. And interest alone, over the life of the loan is over $70,000.

And if a loan is discharged due to death, you pay taxes on the cancelled amount, at ordinary income rates.

The answer isn’t, well. Heloc or PP, same mess. Rather, it’s to pick a college much more realistically affordable. (Scroll past the login and see the calculator. )

You have no savings and you’re thinking about piling on 160k in loans? No no no.

More likely, you won’t even be eligible for a loan all 4 years so then you’re left with massive debt and no degree for kiddo.

Pick another school. I don’t know how much you can pay from cash flow, but you can surely do better than 40K per year in loans. Have your child start at community college if necessary.

There are protections for federal direct student loans --your child’s payment can be calculated at a lower rate if he is lower income.

There are no special protections for private student loans – they will come after you and your student forever. These loans aren’t even discharged in bankruptcy.

HELOC - worst case is you lose your house,
Parent PLUS - they will take payments from your tax refund and your social security until you die

Plus all student loans have high penalties for going into default.

Haven’t read complete thread. I am pretty sure the HELOC is tied to the market rates and CAN fluctuate. MY SIL took one out and she was dreading every rate bump that came along and made her payments larger. Could have lost her house. Fortunately the kids graduated and paid it back. But there’s a reason those interest rates are so high. HELOC also can have some tax ramifications. I think they no longer allow the deduction. But she said they used to. Check with your CPA

Who is going to pay this back? You or your student?

If this is you: You need to step away and take a deep breath. This is a HUGE massive debt load for undergrad that will be life changing, retirement ending, keeping you on the brink of “I have to choose between food or medicine” type of a life.

Please don’t do this.

What is the school, what is your son’s stats (ACT SAT GPA) what is your home state?
You are not backed into any decisions, even if this years applications are inappropriate, you can reapply next year during a gap year.

Siena, 30, 3.5, NY (no SAT). Gap year not an option. State schools are an option, but not first choices. Still high but not 40k high.
I’ve seen parents and students in court (on tv) over loans. Ideally my child would pay back, but how do I enforce that?
We are still waiting for regular decisions but don’t expect much variability.

The heloc is prime minus .55.

Speaking of retirement, do/can parents use their 401k funds for children’s college?

Do not use your retirement funds to send a kid to college. Just don’t. Let the money sit there and earn interest.

You are from NY? There are a bunch of affordable SUNY colleges. Did your kid apply to any of them?

Are you eligible for the Excelsior award or the STEM scholarship at the SUNY schools (I don’t remember what you said your kid wanted to study).

NO ONE…repeat NO ONE must attend a college where the kid and family need to take out $40,000 a year in loans. This is simply…not required.

You sound like you are only considering expensive colleges. Why is this?

Absolutely do not do this. It isn’t worth it. Piling debt on your kid and risking your own retirement is a double whammy for your family. Your kid will never pay this back, and isn’t mature enough to even understand that. You have to get a backbone and tell your kid those schools are unaffordable. Look at your in-state publics. Consider local community colleges or four years within commuting distance. You are doing your kid no favors by doing this.

If you sign a HELOC or PLUS loan, you are the one legally responsible. You cannot “enforce” your student paying you back. The lender gets whatever remedies are in the contract you signed.The bank gets your house. The Feds can take your social security or other government check.

If you cosign a large private student loan, you are both resonsible, but the lender is not required to go after you both equally. They can chase the signer who has the larger income.

The only loan you are the parent are not responsible for is the federal direct student loan, which is only $5,500 for freshmen.

Did you run the Net Price Calculator on the other schools you are waiting to hear from?

State schools or community college may not be your child’s first choice. Not everybody comes from a family that can provide for that first choice.

Siena is NOT worth it. My friend whose D went there has an entry level job doing data entry and they are struggling with loans. My friend sold their house and downsized to help pay their loans.

Go to a SUNY. What does your kid want to study? Even if you don’t qualify for Excelsior (I don’t), SUNY tuition is less than $25K, full pay. My kids have all gone to SUNY schools.

Plus, I think that under the new tax laws, interest on a HELOC is no longer deductible, but you should check into that.