How to Use a HELOC to Pay for College

A home equity line of credit (HELOC) can be a smart solution for paying for college because HELOCs can sometimes have better interest rates than other options. This guide will walk you through how HELOCs work for college expenses and how they compare to traditional student loans so you can decide what’s best for you.

How to use a HELOC to pay for college in 5 steps

Using a HELOC to pay for college is an option for qualifying homeowners, but it may not be right for everybody. If you’re a parent exploring ways to fund your child’s education or a student considering all your options, here are five steps to take: 

1. Understand how a HELOC works
2. Assess your eligibility
3. Choose a HELOC lender and apply
4. Get the funds and pay for school expenses
5. Repay the HELOC

1. Understand how a HELOC works

A HELOC lets you borrow money against your house. Most lenders will lend up to 85% of your equity, which is the difference between your home’s value and the amount you owe on your mortgage. Here’s an example: 

Home value	$300,000
Mortgage balance	$100,000
Total equity	$200,000
Maximum HELOC (assuming 85%)	$170,000

Many HELOCs have a 10-year draw period where you can withdraw money as needed and pay only interest. After this, you’ll begin making full principal and interest payments to your lender. 

Tip

Because a HELOC uses your home as collateral, failure to make payment could lead to your home being foreclosed. Proceed only if you’re comfortable taking this risk.

2. Assess your eligibility for a HELOC

You’ll typically need a decent amount of home equity and to be up to date on payments to qualify for a HELOC. Here’s an example of what you need to qualify with our HELOC partner Figure:

Requirement	Value
Minimum credit score	640
Loan-to-value ratio	75% – 95%, depending on your credit score
Income	Must be employed, self-employed, or retired
Property	Single-family residences, townhomes, planned urban developments, or condos

Eligibility requirements vary by lender, so take some time to shop around to find the best pricing and terms. Many lenders let you prequalify for a HELOC without a hard credit check. 

What if the lender doesn’t let me prequalify?

Don’t automatically dismiss a lender that doesn’t offer prequalification. Some solid options might skip this step but still be worth considering for college expenses.

Instead, think of it like this: 

• If you’re set on prequalifying before you apply, choose another lender.
• But if you’re interested in proceeding with a lender that doesn’t prequalify, gather as much information as possible about their rates, terms, and fees before applying. This will help you determine if their HELOC is competitive and worth a potential hard credit check.

Tip

As you shop around for a HELOC for college, try to submit all your applications within the same 14 to 45-day window. Credit scoring models often treat multiple inquiries in this timeframe as a single inquiry so you can rate shop with minimal impact to your score. 

3. Choose a HELOC lender and apply

After exploring options with multiple lenders, select the one with the best combination of interest rates, fees, and repayment terms that work for your budget.

The application process for a HELOC involves submitting personal and financial information, along with required documentation such as tax returns and mortgage statements. 

Your lender will review your application, potentially conduct a home appraisal, and process your HELOC. This may take a few days to weeks. Be prepared for possible closing costs, which could be between 2% and 5% of your loan amount. 

4. Get your funds and pay for school expenses

After you’re approved for your HELOC, you can withdraw the funds you need for college expenses like tuition, fees, textbooks, and dorm supplies. Or, you can use the HELOC for other purposes. 

You may access funds by:

• Transferring money to your bank account online or over the phone 
• Using a physical HELOC account card to make purchases or take out cash at an ATM 
• Requesting a check for the amount you need 

Some lenders require you to make a minimum draw on your HELOC, but others don’t have this rule. 

5. Repay the HELOC

During your draw period, you’ll typically only pay interest on what you’ve borrowed. If you pay back the full amount, you can withdraw it again until your draw period ends. 

After your draw period ends, you’ll start repaying the principal and interest on your credit line. Because HELOCs use your home as collateral, you must have a plan for repayment from the start. 

Set up automatic payments or calendar alerts to ensure you don’t miss any payments.

How does a HELOC compare to student loans to pay for college?

If you’ve prequalified with a few HELOC lenders, you should have cost details to compare against student loans to see which is more affordable for college expenses. 

HELOCs often have lower interest rates and you can borrow from your line of credit as needed, so you’re only paying interest on what you use. However, they put your home at risk of foreclosure if you can’t repay.

Student loans, especially federal loans, come with unique benefits. They offer income-driven repayment plans, deferment and forbearance options, and potential loan forgiveness for certain public service careers. However, some private student loans may have higher interest rates than HELOCs.

Here’s a quick comparison: 

	HELOCs	Student loans
Borrowed amount	$15,000 – $400,000	Up to the total cost of attendance, minus any other financial aid
Interest rates (APR)	Usually variable, often lower than student loans	Usually fixed, may be higher than HELOCs
Collateral	Your home	None
Repayment terms	5, 10, 15, or 30 years	Up to 25 years
Tax benefits	None for education expenses	Interest may be tax-deductible
Risk if unable to pay	Potential home foreclosure	Credit damage and wage garnishment

Tip

The annual percentage rate (APR) shows the total yearly cost of borrowing, including interest and fees. It gives a more accurate picture of a loan’s cost than the interest rate alone. Use the APR to compare different HELOCs and student loans, and consider using a calculator to estimate long-term costs.

Should you use a HELOC to pay for your child’s college education?

Using a HELOC to pay for college has pros and cons. Consider both before you borrow. 

Pros

• May have competitive interest rates

  HELOCs may have a lower interest rate than a Parent PLUS or private student loan.

• Might be able to borrow exactly what you need

  HELOCs are a form of revolving credit, so unless your lender requires an initial draw that’s more than you need, you can withdraw money as you go.

• Interest-only payments during the draw period

  You may only pay only interest on what you borrow for the first five to 10 years, rather than the full amount. This can result in lower monthly payments initially while your child is in school.

Cons

• You may get a variable interest rate

  A variable rate could go up or down over time, resulting in unpredictable borrowing costs and monthly payments. Many student loans have fixed rates.

• Your house is used as collateral

  The lender could foreclose on your home if you miss HELOC payments.

Before you choose a HELOC or student loan to pay for your child’s education, ensure you’re also on track to meet your retirement goals.

Our expert’s take

Erin Kinkade

CFP®

I don’t think a HELOC is a terrible idea, but with so many other options to fund college, I think it should be a last resort. I suggest always maximizing federal loans first in combination with using 529, Coverdell, or other savings and investment accounts earmarked for a child’s education. If you start planning early enough, families can plan on the savings they need or the cost of education they may need to limit their child to (for example, in-state public versus private school, out-of-state, or Ivy League). I understand some parents and guardians are set on paying for all education costs and not letting their children enter the workforce with debt, and I recommend managing and understanding this preference. This is an example of when using a HELOC may be the best option as long as the borrower understands the considerations and consequences surrounding HELOC. This is a situation where they could lose their home, whereas a Parent Plus or other unsecured loan would far reduce that risk.

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What else can a HELOC be used for?

Is using a HELOC to pay for college right for you?

Using a HELOC to pay for college could make sense in these specific instances: 

• You have a stable income and at least 15% equity built up in your home.
• The HELOC interest rate is lower than the student loan rates you or your child qualifies for.
• You’re a parent who wants to help fund your child’s education without taking out a Parent PLUS loan.
• You want to consolidate existing student loans at a potentially lower interest rate.
• You need funds for education-related expenses not covered by traditional student loans (like living expenses and study abroad programs).

At the same time, you may want to avoid a HELOC if: 

• Your finances are tight or your income is unstable.
• You can’t risk potential foreclosure on your home.
• You could get subsidized or lower interest rate student loans.
• You could qualify for other aid that could help cover the cost of college.

Before applying for a HELOC, make sure your child submits the FAFSA to explore financial aid options like grants and work-study. Applying for scholarships can also help them earn gift aid for school. 

Keep in mind that student loans may come with more repayment options and qualify for the student loan tax deduction of up to $2,500 (even if you use the standard deduction). By contrast, HELOC interest is tax-deductible only for qualifying home renovations if you itemize.