home equity

6 reasons (5 good, 1 bad) to spend your home equity

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Maybe: Use equity as a student loan
Maybe: Use equity as a student loan | PeopleImages.com/Getty Images

Maybe: Use equity as a student loan

A HELOC or home equity loan can be an attractive way to finance a child's education because the interest rate might be lower and the maximum loan amount higher than some other types of education financing, says Andy Tilp, president of Trillium Valley Financial Planning in Sherwood, Oregon.

But this strategy isn't risk-free either.

"I've seen parents struggle because they have to delay retirement, sometimes for many years, because of this huge debt. And if they lose their home, and with a bit of an ironic twist, they may be moving in with their new college grad," Tilp says.

A related question is whether to tap equity to pay off a student's loans after he or she graduates.

That might seem smart, but Alan Moore, co-founder of XY Planning Network in Bozeman, Montana, says parents shouldn't sacrifice their own financial well-being.

"Kids are much better off with financially secure parents than they are being financially secure and having to take care of their parents later in life," Moore says.

One exception might be if the parent (unwisely) co-signed a student's loans and the student didn't make the payments.

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