How to Finance Children’s Education

Parents who want to help finance children’s education have an array of options from which to choose. We’ll explain a few of the most popular ways to finance your child’s schooling here.

Home Equity Loans

If your home is worth more than the balance left on your mortgage loan, you have equity in your home. Homeowners who have equity can then borrow against it with low-interest loans. Commonly, home equity loans have much lower rates than credit card loans and loans for parents of students. In that regard, home equity borrowing is a fairly inexpensive way to finance children’s education. On the downside, home equity loans can be very risky. Your house serves as collateral for the loan, which means defaulting on payments would result in losing your home. If you don’t want to take that kind of risk for education expenses, you might pursue another avenue of financing.

Federal Loans

Parent PLUS loans are another option you can choose to finance children’s education. These loans are government-sponsored and have considerably lower interest rates than private loans. With a parent PLUS loan, you can borrow up to the complete cost of your child’s education, including living expenses, books, tuition, and more. A PLUS loan may be especially helpful to you if your income exceeds the maximum amount allowed to qualify for need-based assistance. PLUS loans are available to all parents regardless of income level.

Liquidate Assets

You might have an extra car or other asset that you could liquidate in order to finance children’s education. If you can do without the asset and want to avoid borrowing, think about selling it to raise money for your child’s tuition. For example, when your children go off to school, they usually don’t need the car you bought them anymore if they live on campus. Before they leave, you can sell the car and apply the cash toward tuition expenses.

Personal Loans

Unsecured personal loans tend to have higher interest rates when compared to other college-financing sources, but parents can use them to supplement other forms of payment. Whatever your Parents PLUS Loan or home equity loan won’t cover you can handle with a personal loan from your bank. Usually, taking out a personal loan from your bank or credit union will be cheaper than charging your child’s education-related expenses to a credit card. Remember to use unsecured personal loans and credit cards as last resorts, as they tend to have the highest rates.