The college application? No problem. The drive to school? Piece of cake.

Now, though, it's time to pay up. And if savings or other assets aren't an option, a home equity line of credit can be a good tool despite several pitfalls, experts say.

"A lot of people really don't qualify for a lot of financial aid because their incomes are so high but, nevertheless, they haven't put a lot of money aside for college," says Michael Ryan, a certified financial planner with Professional Planning Group in Westerly, R.I. "They're left with just having to borrow the money on their own, and the line of credit is a pretty convenient and tax-advantaged way to do that."

Well-suited home equity lines
The benefits of using the same house a student was raised in to pay for their college education stem from several rate and cost characteristics of home equity lines of credit. They are less expensive than personal loans, for example, and aren't subject to the income limits that bar some families from obtaining government-backed loans. Most usually have tax-deductible interest as well, because they use a borrower's home for collateral like a regular mortgage.

Another advantage: The lines are more flexible than home equity loans, or second mortgages. That's because people can take out the amount of money they need when they need it, making them ideal for families with kids who are heading off to college at staggered times.

"You could draw it down, then pay it back, and draw it down again," said Joe Anderson, vice president of consumer lending at Baltimore-based Provident Bankshares Corp.

Reasonable costs
Rates are very competitive, too, when compared to unsecured personal loans and even home equity loans. In the latest Bankrate.com national survey, for instance, the average line of credit rate was 6.98 percent, compared with 9.02 percent for a home loan and 14.88 percent for a personal one. The interest rates on home equity lines of credit float during the life of the loan, however, while other types of loans establish fixed payments.

Finally, lenders often eat closing costs for borrowers who activate their lines right away by putting a balance on them, or for people with high credit limits.

Be careful to protect retirement
Still, borrowers can get into trouble easily when using the lines of credit because college comes at a crucial time for most parents.

Ryan notes that people using them to pay for a child's education generally aren't too far from retiring. By putting more debt on their homes, they will reduce or eliminate its accumulated equity -- potentially wiping out a prime source of  "golden years" income, since retirees tend to sell big properties to move into smaller, cheaper homes.

"It's a seemingly painless way to pay for college education, but I think the real problem won't become apparent until 10 or 20 years down the road when retirement is looming," says Ryan. "You're starting all over again with those mortgage payments, so you're right back to square one."

Look at other sources
If  families can get by with small infusions of cash, they might want to talk to their hometown banker.

Citizens State Bank of Loyal, Wis., tries to steer its regular customers toward a discounted personal loan in the names of both the parents and the student, according to vice president Rick Szymanski. The loans are typically for no more than $2,000 -- covering only part of the college costs -- but they carry rates of just 10 percent or so, he says. They can also be structured so customers pay only interest while their children are in school.

Planners also say families who qualify for government loans should take them rather than using any home equity.

"Your interest rate is clearly better than you'd get doing a home equity line," says Patti Houlihan, a certified financial planner at Cavill and Company in Oakton, Va. The first payments also won't be due until six or nine months after the student finishes classes.

Parents in such a situation can choose from Perkins, Stafford and PLUS loans, each of which have different terms, conditions and borrowing limits. Perkins rates are generally the lowest at a fixed 5 percent, while the other two, which are tied to the movements of different Treasury bills, are currently a bit higher.

As a final caution, planners also suggest students contribute some of their own income from a job or other source to their education because it will give them a financial stake in the matter.

-- Updated: July 20, 2001