| Since HELOCs are excellent tools for handling irregular | | | | Bureau of Labor Statistics, is currently around 5% for |
| expenses, it makes sense that lots of people are | | | | higher education. That means that ten years from now |
| turning to them to provide additional cash for college. | | | | the same school would cost not $20,000 but $35,104. |
| Usually a student applies for as much scholarship, grant | | | | Assuming you have nothing saved now, you would |
| or student loan money as he/she is eligible, then the | | | | need to put at least $292.53 under your mattress |
| parent will make up the difference, if needed, by | | | | each month in order to pay for four years of school. |
| accessing home equity with a HELOC. This | | | | Creative financing may create a viable alternative. |
| arrangement works well for many reasons: 1) The | | | | 529 plans are becoming an increasingly more popular |
| HELOC allows the parent to pull out only as much | | | | means for parents to pay for their children's |
| money as needed at a time without having to borrow | | | | educations. The 529, named for the government |
| (and make payments on) a large lump sum; 2) As the | | | | regulation that pertains to the program, is a plan that |
| payments are interest only for up to 15 years, | | | | allows parents to pre-pay a future college education at |
| repayment is easier on the parent's pocketbook; 3) | | | | today's prices. Using our previous illustration, $20,000 |
| The credit line doesn't have to be used specifically for | | | | paid now would pay for four years education at |
| tuition. It can also provide money for additional | | | | Imaginary State U at any future date. The challenge |
| expenses such as housing, books, transportation, etc.; | | | | for most of us would be where to get the $20,000. |
| and 4) The payments are usually tax deductible | | | | If you don't have that kind of cash readily available to |
| (consult your tax advisor). | | | | you, one option might be to use you home equity. |
| The scenario above illustrates how most people use | | | | Read this carefully before you try this at home. |
| HELOCs to help get their kids through school. | | | | Let's say you went to and made arrangements to get |
| However, a recent conversation with some colleagues | | | | a Home Equity Line of Credit. You could write a check |
| brought up the question of whether or not a HELOC | | | | against the line for $20,000 and pre-pay college at |
| could be used as a vehicle to fully fund a college | | | | today's price. At today's prime rate of 6.5% your |
| education. Surprisingly, the answer may very well be | | | | monthly, interest only, tax deducible payment would be |
| yes and doing so could even save you money! | | | | only $108.33. |
| Consider the following scenario: | | | | In theory, by using creative financing (a HELOC), you |
| If you have a child who is 8 years old today, he or she | | | | could conceivably provide your child a completely |
| will ideally be ready to enroll in college in ten years. If | | | | funded college education at a savings of $184.20 per |
| tuition is currently $5,000 per year, you would need a | | | | month. If you consider the fact that college graduates |
| minimum of $20,000 for four years of school at | | | | earn an average of about *70% more income than |
| today's tuition rate. Unfortunately, with ten years | | | | non-graduates, it's certainly something to think about. |
| before your child leaves for State U, you will have to | | | | *Data reported in U.S. Government Statistics |
| account for inflation, which, according to the U.S. | | | | Copyright © 2005 Robert E. Jones, Jr. |