Should You Use a HELOC to Pay Your Kid’s College Tuition?

This article was first published on NerdWallet.com.

Proud of your new high school graduate but still wondering how you'll pay for college? If you're a homeowner, you might be eying your home equity, the current value of your home minus the amount still owed on your mortgage.

College tuition has been on the rise, but so have home values, and in March 2024 real estate data provider ICE Mortgage Technology estimated that American homeowners are sitting atop roughly $11 trillion dollars in tappable equity.

A home equity line of credit, or HELOC, is one way to turn that equity into usable funds. Because a HELOC is a second mortgage, your primary home loan's interest rate — which for a majority of homeowners is well below current mortgage rates — remains intact.

So if you're trying to figure out how you're going to come up with cash for those tuition bills before back-to-school season, should you consider a HELOC? Before you decide, weigh the possible benefits against the drawbacks — including a huge one — and review all your options.

Why equity borrowing is tempting

HELOC benefits go beyond keeping your current mortgage interest rate. For one, a HELOC may enable you to borrow a sizable sum. Lenders will usually let well-qualified homeowners borrow up to 80% of their home equity.

For example, say you have a $350,000 home and you still owe $150,000 on the mortgage. That means you have $200,000 in equity and could get a HELOC that...