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Financing College With A Home Equity Loan Staff - Mortgage Lenders Plus.com

Up until July of this year, the best financing out there for a college education was through the federal government. That all changed, however, when new interest rates were set for the two principal types of college loans. When the new student loan rates became effective on July 1, interest on new Federal Stafford Loans increased to a permanent rate of 6.8 percent.

Existing Stafford loans went up from 5.3 percent to a 7.14 percent fixed rate. Lawmakers also raised student loan interest rates on Parent Loans for Undergraduate Students, federal loans parents can take out to help finance their children's education. The PLUS loan increased from 6.1 percent to a fixed rate of nearly 8 percent for existing loans. The rate is 8.5 percent on new PLUS loans.

There are allowable student loan interest deductions for interest paid on educational loans, both for students and for parents. There are caps however, and the rules that apply when the student is in school, after graduation, and when he or she is no longer a dependent can get complicated.

The new student loan rates combined with the continuing low interest rates in the commercial market might make a home equity loan an attractive option for financing college, depending on your financial circumstances and desires. Right from the jump, the new fixed rate on parental loans for student support is 8.5%. That doesn’t make a Federal student loan rate a whole lot more attractive than a fixed rate home equity loan, if you’re in the prime market.

With a home equity loan, you retain full deductibility on all interest paid. There are caps on the yearly amounts for student loan interest deductions. That won’t be an issue with a home equity loan; if you need to defer major payments on one student because you’ve already got another in school, you can get an adjustable rate home equity line that will allow you to minimize payments.

Your tax bracket is going to make a difference with a student loan interest deduction, whereas that will not be the case with a home equity loan or line of credit. You can also select a home equity financing arrangement that meets your desires with regard to the length of the loan. Some students accept the fact that they’ll be paying on their education loans for thirty years. That need not be the case for parents.

There’s always the down side of raising your debt to value ratio regarding your home. Housing prices have hit the brakes, and it’s unclear where they’ll be going for the next couple of years. But eventually these spikes and dips level out; it’s fair to say that real estate values in the long term are only going in one direction. So if you have no plans to move for the next few years, perhaps it will be in your interest, so to speak, to bypass those Federal student loan rates and take out a home equity loan.