If you’re gearing up to send a child to college, the cost can feel overwhelming. A home equity line of credit (HELOC) or home equity loan could help pay for it — but before leveraging your equity, you’ll need to balance a number of considerations.
Key college costs and home equity statistics
- The average annual cost of in-state public college is $10,740, according to College Board. By comparison, attending a public college from out-of-state comes with an annual price tag of $27,560. Meanwhile, private colleges and universities have an annual cost of approximately $38,000.
- As of April 2022, the average homeowner has $207,000 of tappable equity, Black Knight reports.
- The average homeowner gained $64,000 in home equity between the first quarter of 2021 and the first quarter of 2022, CoreLogic reports.
- HELOC originations jumped by 31 percent at the end of 2021 versus the end of 2020, and new home equity loan originations rose by 13 percent, according to TransUnion.
What is home equity and how can you use it?
Home equity is the difference between what your home is worth and what you still owe on your mortgage. For example, if you were to have $170,000 remaining to pay off on your mortgage and your home was worth $400,000, you’d have $230,000 in equity.
Homeowners accumulate equity by making mortgage payments and when their property’s value rises. There has been a huge increase in equity due to the surging housing market: In fact, collective home equity in the U.S. recently hit a record $27.8 trillion, according to the Federal Reserve.
Homeowners tap their equity for a variety of big expenses, including major home improvement projects, large medical bills and higher education costs.
When you use your home’s equity to pay for college, you can get a home equity loan, a type of second mortgage that offers a lump sum you can use for tuition, room, board and any other costs. You’ll pay the loan back in monthly installments at a fixed interest rate and over a set period, sometimes as long as 30 years.
Instead of a home equity loan, you could choose a HELOC, which operates more like a credit card. HELOC rates are variable, and you can access the money as needed. A HELOC might be better for some of the smaller expenses of college, like books, food and other everyday costs.
HELOCs and home equity loans vs. student loans
While you can access your home’s equity for any purpose, student loans are solely for covering the costs related to earning a degree.
Student loans …….