Should You Use a Home Equity Loan to Pay for College?

Let’s face it—college isn’t cheap. As tuition prices continue to soar, you might be wondering if tapping into your home equity is a smart way to bridge the gap.

You’re not alone. Many parents consider a home equity loan when federal aid, scholarships, and savings fall short. But is it a smart financial move, or a hidden trap?

In this guide, we’ll break down how home equity loans work, weigh the risks and benefits, and explore safer ways to finance a child’s college degree. By the end, you’ll know whether this route fits your situation—and where to turn if it doesn’t.

Key Takeaways:

• Understand how home equity loans work for college expenses.
• Discover the pros and cons of using home equity vs. student loans.
• Learn what lenders look for and how to qualify.
• Explore alternative funding strategies beyond borrowing against your home.
• Get expert tips for safe borrowing and future planning.

What Is a Home Equity Loan?

A home equity loan lets you borrow a lump sum based on the equity you’ve built in your home. Think of it like a second mortgage—you get the money upfront and pay it back in fixed installments.

Key features:

• Fixed interest rate
• Monthly payments for 5–20 years
• The loan amount is based on your equity and credit profile.

Heads up: Your home is collateral. If you default, you risk foreclosure. That’s why it’s critical to compare this option with other forms of financing.

Pros of Using Home Equity for College

Using a home equity loan can offer benefits over private student loans or PLUS loans:

• Lower interest rates (compared to unsecured debt)
• Predictable repayment terms
• Potential tax deductions (if used for qualified education expenses; verify with a tax advisor)

Cons and Risks to Consider

Before you sign, know the drawbacks:

• Puts your home at risk
• Reduces future borrowing power
• No federal protections or deferment options like federal student loans

Pro Tip: If your child may qualify for grants or income-based repayment later, federal loans might be a better deal.

Alternatives to Home Equity Loans

Want to avoid putting your home on the line? Consider these:

• Federal Student Aid (FAFSA-based loans, Pell Grants, Work-Study)
• 529 Savings Plans (tax-advantaged education savings)
• Parent PLUS Loans (federal, though with higher interest than home equity)
• Scholarships and Employer Tuition Assistance

You can also explore platforms like Be My Neighbor for smarter home financing options that won’t leave you stretched

Lender Expectations & Qualification Tips

If you decide to pursue a home equity loan:

• You’ll need at least 15-20% equity in your home
• Most lenders require a credit score of 620+
• Stable income and a DTI (Debt-to-Income Ratio) below 43% are usually needed

Tip: Shop around for quotes, and use lender review platforms or mortgage advisors to avoid predatory terms.

Conclusion: Smart Homeowners Explore Smarter Options

Paying for college is one of the biggest financial decisions you’ll make as a parent, and it's important to get it right. While a home equity loan might seem like a fast and affordable solution, it comes with serious risks, including putting your home on the line.

If you're confident in your income stability, credit score, and repayment ability, this path could offer lower rates and predictable terms. But it’s not always the smartest or safest route, especially when federal student loans or 529 plans may serve your family better in the long run.

Before making a move, explore all your options.

Platforms like Be My Neighbor can help you compare lending solutions tailored to your situation, with compliance, transparency, and personalized guidance at the core. Whether you're refinancing, borrowing, or just planning, choosing a trusted mortgage advisor makes all the difference.

Make an informed decision that supports your financial future while giving your child the education they deserve.

FAQs

Can I deduct home equity loan interest for college expenses?

Maybe. If the loan is used for qualified education expenses and meets IRS requirements. Always consult a tax professional.

Is a home equity loan better than a parent PLUS loan?‍

It depends on your credit, risk tolerance, and income. PLUS loans offer deferment, but at higher rates. Home equity loans may be cheaper but riskier.

Will using home equity affect my financial aid eligibility?

It could, especially if it increases your available assets. The Free Application for Federal Student Aid (FAFSA) doesn’t count home equity, but private schools may consider it.

What if I can’t repay the home equity loan?

You risk foreclosure. Always budget conservatively and consider backup plans.

Required Compliance Disclosure: This content is for informational purposes only and does not constitute financial or legal advice. All mortgage products are subject to credit approval. Be My Neighbor Mortgage is a licensed mortgage lender, NMLS #1743790. Visit the NMLS Consumer Access site for license details. Always consult a licensed mortgage professional for personalized guidance. This blog contains affiliate or partnership references between realpha and Be My Neighbor.