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Proud of your new high school graduate but still wondering how you'll pay for college? If you're a homeowner, you might be eying your home equity, the current value of your home minus the amount still owed on your mortgage.
A home equity line of credit, or HELOC is one way to come up with cash for those costly tuition bills. But before you move forward, weigh the possible benefits against the drawbacks — including a huge one — and review all your options.
Benefits of using a HELOC to fund education costs
HELOC benefits go beyond keeping your current mortgage interest rate. For one, a HELOC may enable you to borrow a sizable sum. Lenders often let well-qualified homeowners borrow up to 80% of their home equity.
For example, say your home appraises at $350,000 and you still owe $150,000 on the mortgage. That means you have $200,000 in equity and, in theory, could get a HELOC up to $160,000. In contrast, with a federal Parent PLUS loan, you're limited to exactly what's needed: your student's school-determined cost of attendance minus any other assistance they receive.
With a HELOC, you borrow from the line of credit, as needed, during what's known as the draw period. So you could borrow as the bills come in, and it may be easier to roll with unexpected costs, like a summer study abroad program. Another benefit: Unlike federal student loans, you can use a HELOC for non-education-related expenses.
Did you know...
Interest rates on Parent PLUS loans fell to 8.94% for the 2025-2026 school year, down from a record high of 9.08% seen the previous year. This standard fixed rate applies to all approved parent applicants. Meanwhile, private student loan interest rates currently start at just under 3% and can climb above 17%, depending on creditworthiness and whether you choose a fixed or variable APR. Risks and drawbacks
Here’s the huge drawback: Failure to repay any loan against your home, including a HELOC, can result in foreclosure, so it’s essential to weigh the risk.
Additionally, second mortgages like HELOCs aren’t the fastest or easiest way to get cash. HELOC borrowers may wait more than a month between applying and accessing funds. You'll also need your financial stats — like your credit score and debt-to-income ratio — to be in solid shape. That's comparable to shopping for private student loans.
Unlike HELOCs and private student loans, there is no minimum credit score for Parent PLUS loans. While Parent PLUS loans require a credit check, borrowers may be eligible even with a checkered credit history.
Did you know...
HELOCs generally have adjustable interest rates, which can make it hard to predict what your monthly loan payments will be. In contrast, with a Parent PLUS loan, you lock in the interest rate when you take out the loan. Borrowers may choose a fixed rate for private student loans, and refinancing is an option for private loans if rates drop. How to make a smart choice
Start by taking a step back and assessing your financial needs. For example, prioritizing retirement savings is crucial. So, think hard before shortchanging your retirement to fund your child's education. Otherwise, you risk outliving your assets, and potentially relying on your adult children to cover your late-in-life health care or living expenses.
Here's a practical guide to sorting through how to find money for college.
1. Start with the FAFSA
No matter how you think you'll pay for college, start by filling out and submitting the Free Application for Federal Student Aid, or FAFSA. This will show you how much money your kid could receive from grants, programs like work-study and some scholarships, none of which have to be repaid. Use our FAFSA checklist to make the process easier.
2. Consider federal loans
Federal loans, whether student loans or Parent PLUS, should be considered next. Unlike grants and scholarships, student loans require repayment. Federal student loans have fixed interest rates that are set based on the year they are originated, not your financial characteristics. That can be especially helpful for borrowers who don't have much credit history, but federal loans are a solid choice regardless of your credit score.
3. Use private loans sparingly
Even if you think you could get a better rate elsewhere, federal loans offer borrower protections and flexible repayment options that you're unlikely to find on a private student loan. Federal loans also may be eligible for eventual forgiveness. But if you've hit federal loan limits and it's not enough, private student loans could be an option to fill those gaps.
4. Exercise caution with other financing sources, including HELOCs
If you consider the risks and decide to use a HELOC to help pay for college, take the time to run all the numbers, figuring out how much you'll borrow and what your repayment strategy will be. HELOCs often require interest-only payments while you're withdrawing money, but putting off paying back the principal could leave you strapped for cash when the repayment period kicks in.
Because it can't be said enough: A HELOC is secured by your home, and failure to repay has dire consequences.
NerdWallet writer Robin Rothstein contributed to this story.
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