Parents who are looking for ways to pay for their student’s college have often been able to use parent loans through both federal and private lenders if this is the route they choose to take when it comes to meeting tuition and fees, among other college costs, but there are also some who are making the argument that loans from a homeowner’s equity through refinancing or simply by using a home equity loan may offer more affordability for parents who are looking to offer financial aid to their students, as rates on home loans at the present time may be much lower. Obviously, the costs of attending a college or university is not cheap, especially since we have seen increases in college costs, but whether parents should use their home to help their child has been a debated issue due to the fact that there can be some drawbacks.
Rates that some borrowers may be able to get on a home equity loan or a home equity line of credit could be anywhere between the upper 4% range to 6%, and many parents are seeing that loans are specifically available for the parent of a college student may be around 8% or more. When it comes to comparing costs of loans that will be used to pay for school, it is the responsibility of any borrower to make sure they carefully research what rates and costs will be applicable for their personal situation as failure to do so efficiently could lead to higher costs during repayment.
Yet, where the arguments usually come into play is not about affordability or lower overall costs but there are those who feel that parents who risk their home to pay for their student’s college education are making a mistake as financial troubles or the inability to pay back a loan or line of credit could cost a borrower their home and set them back in their financial life. Furthermore, arguments are also made that student loans available to undergraduates are usually more affordable than loans that parents may be able to get for their student, so helping a graduate repay their loans rather than taking on the debt themselves has been a more affordable option for some in the past.
Obviously, the repayment costs on one of these loans will vary from one homeowner to another, but when reviewing the rates and the overall amount that one borrows, homeowners may find that they are going to be in a less advantageous position than had they allowed their student tomorrow and simply help them repay or if alternatives to student loans were used. Some colleges may allow for students to finance their education, which would allow parents to help make payments throughout the semester but financial aid counselors heavily stress researching grants and scholarships well before considering loans for college.
While there are no guarantees when it comes to financial aid, parents who have used either their home’s equity or even retirement funds to pay for their child’s education may be putting themselves in a position where any financial distress or emergency could do a great deal of damage to their financial lives, and for this reason opting for student loans, like federal loans or researching grants and scholarships available for their child is, in the opinion of some, the more optimal route that parents can take when it comes to helping students through school rather than using their equity or home as a way to help meet these costs.