April 8, 2022

If your child recently received a college acceptance letter from their first-choice school, you both have reason to celebrate. But the letters that soon followed were likely a real party pooper. Is the gap between your child's college tuition bill and their financial aid award package larger than you expected? Even after adding in scholarships, grants, and federal assistance, the balance due before the start of the semester may be more than you have in your savings account.

And depending on where the college is located, you might need even more money than you initially calculated. You'll need to factor in such costs as:

  • Plane tickets to travel back home during breaks
  • Dorm room or apartment furnishings
  • Winter clothing, if moving from Hawaii to a colder climate

Despite this financial reality, you don't want to shatter your child's aspirations of attending their dream college.

The good news is that you might have another option, a home equity line of credit (HELOC). Here's how a HELOC can help cover college education expenses when you've exhausted other sources.

Eligible homeowners can borrow against the equity in their homes using a home equity line of credit (HELOC). Equity is the difference between the home's market value and the amount owed on all mortgage loans and property liens. The home serves as collateral for the loan. Approved borrowers can withdraw funds from a pre-determined credit line to pay for a variety of expenses, including college tuition and related costs.

Unless the student is also the homeowner, they are not associated with the loan. HELOCs are only available to homeowners with sufficient equity in their homes.

If you use your home's equity to pay for college expenses, you can expect:

  • Interest-only payments for up to five years, depending on lender terms and conditions
  • Repayment on the amount borrowed, not the entire credit line at once
  • A one-time application, instead of submitting a new credit application each time additional funds are needed

It's important to note that similar to a mortgage loan, HELOC loan interest payments could help lower your federal income tax bill if the funds are used to "buy, build, or substantially improve" your home. So, if you choose to use a portion of your HELOC funds to pay for college or other debts, the interest paid is not tax deductible. But, the loan's low interest rate and flexibility make it an attractive option for closing the college funding gap.

HawaiiUSA can help fill the college education funding gap. Our HELOCs offer an affordable and flexible way to pay for college expenses as they arise. Visit our HELOC page to learn more about how to use the equity in your home to help you achieve a variety of financial goals.