By Marilyn Kennedy Melia
CTW Features
Many of the students headed for college this fall won’t be leaving home totally behind: The value of their family home will be helping pay tuition bills.
Given the low interest rate environment and “depending on the situation,” home equity lines of credit or loans are popular, says Deborah Fox, of Fox College Funding, a San Diego advisory firm.
Only homeowners with a certain level of equity, which is calculated by taking the current appraised value of a home and subtracting the principal amount of any mortgage on the property, qualify for equity borrowing, notes Keith Gumbinger of HSH.com.
The average rate for lines of credit was 5.54 percent in June, and the average for equity loans, which provide a lump sum with a fixed rate of repayment over a number of years, usually ten, was 6.08 percent.
Equity borrowing is an option to consider against the federally backed Parent PLUS loan or private education loans, explains Mark Kantrowitz, publisher of Cappex.com.
PLUS loans are available to all parents that don’t have serious dents in their credit, and currently carry a fixed rate of 6.31 percent, as well as an origination fee of 4.25 percent.
Private loans can carry lower rates than PLUS loans depending on parents’ credit, says Kantrowitz, who recommends visiting www.privatestudentloans.guru for information.
Deciding how to borrow can be an education in itself, says Fox, because parents must consider the impact any borrowing may have on their overall finances. Borrowing against equity, for example, could reduce their income taxes because interest is usually deductible. But drawing down equity could hamper the ability to move in the short term.
“They should first make sure that their student has maxed out on Stafford loans,” she says, referring to the federal loans carrying a 3.76 percent rate, available to students in limited amounts.
© CTW Features
