Paying for College: Home Equity vs Student Loans

Meta Title: Home Equity vs Student Loans: Which Is Smarter for College? (2026) Meta Description: Compare using home equity to pay for college vs student loans. Real numbers, tax implications, and which option makes sense for your family. Keywords: home equity for college, HELOC vs student loans, pay for college with home equity, parent PLUS vs HELOC

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College costs have spiraled beyond what any family can reasonably save. The average private university now runs $60,000+ per year. Even public schools hit $25,000+ for out-of-state students.

So how do you fill the gap? The two main options: borrow against your home, or take student loans.

Let's compare them honestly.

The Quick Comparison

*Home equity interest may be deductible if used for home improvements. Consult a tax professional.

Federal Student Loans: The Safe First Choice

Always exhaust federal student loans first. Here's why:

Subsidized loans don't accrue interest while in school. That's free money.

Income-driven repayment adjusts payments to what you can afford after graduation.

Public Service Loan Forgiveness erases remaining balance after 10 years of public sector work.

Forbearance options let you pause payments during hardship.

Federal loans protect you. Your home equity doesn't offer these safety nets.

When Home Equity Makes Sense

Home equity becomes competitive when:

You've maxed federal loans. Undergraduate limits cap at $31,000 for dependent students. Graduate and professional schools blow through this quickly.

Your income is too high for need-based aid. If you won't qualify for subsidized loans or income-driven repayment benefits, the rate comparison matters more.

You want one consolidated payment. Managing multiple loan servicers is a headache. A HELOC can simplify to a single draw.

The rate math works. Compare HELOC rates to Parent PLUS (currently 9.08%). If your HELOC is at 7.5%, you're saving 1.5% on potentially $100,000+ in borrowing.

When Student Loans Win

Stick with student loans when:

Your child might pursue public service. PSLF could erase the entire balance.

Income uncertainty exists. Job markets change. Income-driven repayment protects against the downside.

You're within 10 years of retirement. Carrying home debt into retirement is risky. Student loans stay with the student.

Your home equity is your only safety net. Don't bet your housing security on an uncertain future.

The Real Math: $100,000 Example

Say you need to cover $100,000 over four years.

Parent PLUS at 9.08%:

• 10-year repayment: $1,273/month
• Total paid: $152,760
• Total interest: $52,760

HELOC at 7.5%:

• 10-year repayment: $1,187/month
• Total paid: $142,440
• Total interest: $42,440

Savings with HELOC: $10,320

But here's the catch: that HELOC is secured by your home. Miss payments and you risk foreclosure. The Parent PLUS loan can destroy your credit but won't take your roof.

Hybrid Strategy: The Smart Approach

Most families benefit from mixing both:

1. Max out federal subsidized loans first — Free money during school
2. Take federal unsubsidized up to the limit — Still gets federal protections
3. Use HELOC for the gap — Lower rate than Parent PLUS
4. Keep emergency cushion in HELOC — Don't draw the full amount upfront

This approach gets you federal protections on part of the debt while saving interest on the rest.

The Conversation Nobody Wants to Have

Before borrowing anything, ask hard questions:

Is this school worth the cost? A $240,000 private school degree in a field paying $45,000 starting salary is mathematically disastrous.

What's the realistic starting income? Check actual salary data for the specific major and school, not marketing materials.

Who's responsible for repayment? If you use your home equity, can your child contribute to payments? Get this in writing.

What if they don't finish? 40% of students don't complete their degree in six years. What happens then?

Tax Implications

Home equity interest is only deductible if the funds are used for home improvements — not education. The 2017 tax law changed this.

Student loan interest deduction is available up to $2,500/year, but phases out at higher incomes ($90,000 single, $185,000 married).

Neither option offers significant tax advantages for high earners paying for college.

Our Recommendation

Start with federal student loans. Always.

Consider home equity when:

• Federal limits are exhausted
• HELOC rate is meaningfully lower than Parent PLUS
• You have substantial equity cushion remaining
• Your retirement savings are on track
• Your child has a clear career path with strong earning potential

If you're unsure, err toward student loans. Protecting your home matters more than optimizing interest rates.

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Next Steps

Ready to compare your options? Check your home equity to see what's available, then weigh it against the federal student loan limits for your situation.

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Last updated: February 2026. Rates change frequently. Verify current rates before making decisions.