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Aug 11

Is a Home Equity Loan a good option for financing college?

Is a Home Equity Loan a good option for financing college?

Are you sending a child off to college soon? Are you thinking about going back to school yourself? One of the biggest deciding factors about when and where to continue an education is often financing. And with good reason. According to The Visual Capitalist, the cost of a college education has increased by 1200% since 1980.

There are many options for financing a college education. The first is to begin saving as early as possible. If you begin saving when your child is born, as little as $200 per month can yield great results by the time your child is ready for college. Banks with multiple savings options like tiered savings, money markets, CDs, and even Roth IRAs can offer you added savings yields to help build your college savings nest egg. Your neighborhood bank, Homewood Federal Savings Bank, will work with you to determine the best savings plan for your family.

If you still need to cover the gap between college costs and available federal student loans, you have a few different options. One is to take a private student loan. Another is to use a home equity loan, if you own your home. Let’s take a look at the pros and cons of using a home equity loan to finance a college education.


  • Fixed interest rate – When you borrow against the equity you’ve built in your home, you are taking on a second mortgage. Like your first mortgage, the second will be at a fixed rate for a fixed period of time. This makes planning easier.
  • Lower interest rates – Today’s mortgage lending rates have made mortgages a very affordable option. Home equity loan rates are usually slightly higher than a first mortgage but are still typically slightly lower than a private student loan.
  • More money available – Most mortgage lenders are willing to loan you up to the full 100 percent of your home’s equity. Student loans have caps on how much you can borrow.


  • Your house is on the line – Your home may be your most valuable asset; do you really want to risk it on a student loan when there are other affordable options available?
  • Lack of flexibility – Student loans generally offer flexibility or forbearance during difficult financial periods. Home equity loan payments must be made in full each month during the loan period.
  • You are at the mercy of the housing market – Home equity loans are a second mortgage on your home. If the housing market takes a downturn, you risk owing more on your house than it is worth.

Ultimately the decision on how to finance a college education comes down to your individual financial and lifestyle goals. For many people, the flexibility of a private student loan to supplement federal student loans makes that preferred option. However, if you choose to take advantage of the current low mortgage rates, and take a home equity loan to pay for college, work with a bank you can trust. Baltimore’s hometown bank, Homewood Federal Savings Bank, has your financial interests at heart and our bankers work with you to develop a personalized plan to help you make the decisions that are best for your financial goals.