HELOC vs. Student Loans to Pay for College: Which Is Better?

Paying for college is a major financial decision—whether you’re helping your child cover tuition or returning to school yourself. When savings or income alone won’t cover the cost, many families turn to borrowing. But what’s the right kind of loan?

Three popular options include federal student loans (including Parent PLUS loans for parents), private student loans (including private parent student loans), and home equity lines of credit (HELOCs). Each comes with different eligibility rules, repayment terms, and risks.

This guide compares how federal and private student loans stack up against HELOCs, so you can decide which is the better fit for your financial goals and household situation.

Table of Contents

Using a HELOC to pay for college
Federal student and Parent PLUS loans
Private student and parent loans
Comparing real options: HELOC vs. parent loan vs. parent PLUS loan
How to decide between a Parent PLUS loan, HELOC, or private parent loan
FAQ

Using a HELOC to pay for college

A home equity line of credit is a type of second mortgage you can use to access some of the equity in your home. You can use a HELOC for anything, including college expenses, home improvements, debt consolidation, and more.

Unlike a traditional loan, a HELOC provides a revolving line of credit similar to a credit card. You can take draws from your credit line—up to your account’s credit limit—for a period of up to 10 years.

During that time, you’ll typically make interest-only payments on the amount you borrow. But you can also pay down your balance and reuse the credit line repeatedly.

After the draw period ends, you’ll enter a repayment period, during which you’ll pay off your full balance over up to 20 years.

HELOC terms and costs

HELOCs can range anywhere from $10,000 to $2 million, depending on the lender. However, the amount of your credit limit will depend on how much equity you have in your home. Lenders typically allow you to borrow up to 80% and 90% of your home’s value between your primary mortgage and the second mortgage.

HELOC interest rates can be variable, meaning they can fluctuate over time, and are determined based on your creditworthiness. Some lenders, like Figure and Aven, offer fixed rates on each draw. This means that you get a different interest rate each time you draw from your HELOC, based on the Prime Rate.

Depending on the lender, you may have to pay closing costs of up to 5% of your desired credit limit, though some lenders don’t charge closing costs at all. Other costs associated with HELOCs include annual fees and prepayment penalties if you close your account early.

HELOC pros and cons

Pros

Manageable monthly payments

You only have to pay accrued interest on your borrowed amount during your draw period. This arrangement can give you some breathing room if your budget is tight.
Use only what you need

While colleges display the cost of attendance for students, you can still borrow more than your child needs with a Parent PLUS loan, increasing your total costs. A HELOC can be worthwhile if you want to ensure that you incur debt for only necessary expenses.
More flexibility

While Parent PLUS loans are designed to be used only for qualified education expenses, you can tap your HELOC for college costs and anything else you need. You can even qualify for a tax deduction using HELOC funds to buy, build, or substantially improve your home.

Cons

Your home is at risk

If you fail to keep up with monthly payments on your HELOC, the lender can foreclose on your home, forcing you to move out.
You don’t benefit from federal protections

Parent PLUS loans don’t have as many relief options as student-oriented federal student loan programs, but they still offer some programs that can be useful if you face financial hardship.
Can be more expensive

Depending on current interest rates, getting a HELOC with a lower rate than a Parent PLUS loan is possible. But over time, your HELOC rate can fluctuate if it’s variable. Even if it’s fixed with each draw, if market rates rise, so will yours, increasing your costs. What’s more, if your credit score isn’t in near-perfect shape, you may have a hard time qualifying for a low interest rate to begin with.

🏡 Example: Using a HELOC for college

Laura and Mike have significant equity in their home and a strong credit profile. Rather than take out a Parent PLUS loan for their daughter’s tuition, they opened a HELOC to cover the first two years of college. The interest rate was initially lower than federal loan options, and they liked having flexible access to funds over time. They plan to pay it off quickly to avoid interest rate hikes—but understand the risk since their home is on the line.

Federal student and Parent PLUS loans

Federal student loans are backed by the U.S. Department of Education and are often the most affordable way to borrow for college—especially if students are eligible for loans in their own name. These loans offer fixed interest rates, flexible repayment options, and federal protections you won’t get from private lenders or home equity loans.

Depending on whether you’re a parent of an undergraduate student or an adult returning to school, different loan types may be available to you.

If you’re a parent of a dependent undergraduate student

Parent PLUS Loans are the only federal loans you can take out in your own name.
To apply, your child must first submit the FAFSA (Free Application for Federal Student Aid), and then you’ll submit a separate Parent PLUS loan application.
You can borrow up to the full cost of attendance, but you’ll face higher interest rates and fees than your child would with their own federal loans.
There’s no credit score minimum, but you can be denied for adverse credit history like recent bankruptcy or foreclosure.

Tip: If your child is eligible for federal student loans in their own name, it’s often cheaper and safer to let them borrow first—especially if they’re eligible for subsidized loans.

If you’re a returning student (or attending graduate school)

You’ll likely be eligible for Direct Unsubsidized Loans and, if you’re a grad student, Grad PLUS Loans.
You must submit the FAFSA, even if you’re financially independent, to determine eligibility.
You may qualify for:
- Direct Unsubsidized Loans: No credit check, fixed interest, annual borrowing limits
- Grad PLUS Loans: Higher limits, but require a credit check (though still no minimum score)

Tip: Adult learners generally won’t qualify for subsidized loans, which are reserved for undergraduates with demonstrated financial need.

Federal student loan terms and costs

Feature	Direct Unsubsidized (Student)	Grad PLUS (Student)	Parent PLUS (Parent)
Borrower	Student	Student	Parent
Credit check?	No	Yes (basic)	Yes (basic)
Annual borrowing limit	$20,500 (grad)	Up to full cost of attendance	Up to full cost of attendance
Interest rate	5.50% (undergrad), 7.05% (graduate & professional degrees)	8.05%	8.05%
Origination fee	1.057%	4.228%	4.228%
Repayment start	6 months after school	Same	After disbursement (unless deferred)

Federal and parent PLUS loans advantages and disadvantages

Pros

Access to repayment relief

Federal loans offer deferment, forbearance, income-driven repayment, and forgiveness options.
Fixed rates and predictable payments

You’ll know your interest rate and can budget accordingly.
No collateral required

Unlike a HELOC, these loans aren’t tied to your home.

Cons

Loan use is restricted

Funds must be used for qualified education expenses.
Interest can be high for PLUS loans

Both Parent PLUS and Grad PLUS loans come with higher rates and origination fees.
Capitalization risk

Deferring payments can cause unpaid interest to be added to your principal balance.

🏛️ Example: Using Parent PLUS loans to pay for college

Karen didn’t want her son to worry about debt during school, so she took out a Parent PLUS loan to cover his tuition and housing. She deferred payments while he was enrolled, knowing interest would accrue. Karen valued the fixed rate and federal repayment options, including income-contingent repayment if needed. While it increased her monthly obligations, she felt more comfortable with a federal loan than using home equity.

Private student and parent loans

Private student loans are credit-based loans offered by banks, online lenders, and credit unions. They’re often used when federal student loans don’t cover the full cost of education or when a borrower doesn’t qualify for federal aid. These loans can be taken out by students—often with a cosigner—or directly by parents on behalf of their children (sometimes called parent student loans).

Private loans may appeal to:

Parents with strong credit who want to avoid the higher interest rates and fees of Parent PLUS loans by taking out a private loan in their own name
Adult learners returning to school who may not qualify for subsidized federal loans or need to borrow above federal limits
Students with a qualified cosigner (often a parent) who want access to lower interest rates and broader lender options

Unlike federal loans, private loans don’t come with built-in protections like income-driven repayment or loan forgiveness. But if you or your cosigner has excellent credit, private loans may offer lower interest rates and more flexible repayment terms than Parent PLUS loans—or even HELOCs in some cases.

Private student and parent loan terms and costs

Private loan terms vary by lender, but here’s what to expect—along with how terms may differ depending on whether the student or the parent is the borrower:

Category	Details
Loan amounts	Up to 100% of the school’s certified cost of attendance (same for student and parent loans)
Interest rates	Fixed: Typically 4% – 14% Variable: Usually 5% – 15% for student loans; parent loans often start slightly lower but may cap lower too
Repayment options	Student loans may allow deferred, interest-only, flat-fee, or immediate repayment; Parent loans usually require immediate or short-term interest-only repayment
Loan terms	5, 10, or 15 years depending on lender (same across both types)
Fees	Most lenders charge no origination or prepayment penalties (same for both)
Cosigner release	Available after 12–24 months of on-time payments — only applies to student loans with a cosigner
Who holds the debt	Student loan: Student is primary borrower, often with a cosigner; Parent loan: Parent is sole borrower and fully responsible

Private student and parent loan pros and cons

Pros

Competitive rates with good credit

For borrowers with strong credit—or a qualified cosigner—private loans may offer lower interest rates than Parent PLUS loans or HELOCs.
Multiple repayment options

Choose the repayment plan that fits your cash flow, whether that’s full repayment now or deferring until after graduation.
No hidden fees

Most reputable lenders charge no origination or early repayment fees.

Cons

No federal protections

Unlike federal loans, private loans don’t qualify for income-driven repayment, deferment, or forgiveness programs.
Credit barriers

You’ll typically need a credit score in the mid-600s or higher, or a cosigner, to get approved and qualify for low rates.
Variable interest risk

Some private loans offer variable rates that could rise over time—creating budget uncertainty compared to fixed-rate federal loans.

Parent loans vs. student loans: Who should borrow?

If you’re turning to private loans to fill a funding gap, it’s usually better for the student to borrow with a creditworthy parent as a cosigner rather than the parent taking out a private loan themselves.

This keeps the debt in the student’s name—where it belongs—while still allowing the parent to help them qualify for a better rate. It also preserves the parent’s credit and borrowing power, and many lenders offer cosigner release after a period of on-time payments.

Private parent loans, by contrast, place the full financial responsibility on the parent and typically require repayment to begin immediately, making them a better fit only if the parent is fully prepared to take on the debt.

I do believe the loans should be taken in the student’s name, not the parents. College kids should also understand the future impact of that loan payment. Upon graduation and the onset of the necessary loan payments, will they have an income that will allow them the freedom from living in their parents’ basement while paying off loans?

Parents are typically saving for their own retirement, possibly caregiving for their own parents, and simultaneously sending their children to college. I believe parents should help as much as possible, but this does not include taking out loans for them.

Catherine Valega , CFP®, CAIA

💳 Using private loans to pay for college

James and his daughter Emily split the cost of her final two years after maxing out federal student loans. Emily applied for a private student loan through a lender that offered low rates with James as a cosigner. They chose a deferred repayment plan while Emily finished school, with the goal of removing James as cosigner once she lands a full-time job and builds credit.

Comparing real options: HELOC vs. parent loan vs. parent PLUS loan

Once you’ve explored the different borrowing options available to parents—HELOCs, private loans, and federal loans—the next step is comparing actual lenders and loan programs side by side. To make this easier, we’ve chosen a standout example for each category:

Figure represents a typical online HELOC lender with a fast application process and competitive rates for borrowers with home equity.
College Ave offers a private student loan specifically for parents, with flexible repayment options and no fees.
Parent PLUS Loans are issued by the federal government and offer repayment protections—though at a higher fixed interest rate and with upfront fees.

Each of these options works differently when it comes to interest rates, fees, eligibility, repayment, and borrower protections. Depending on your financial situation, credit score, and how much flexibility you need, one may be clearly better than the others.

Here’s how they stack up:

	Figure HELOC	College Ave Parent Loan	Parent PLUS / Grad PLUS Loan
Who borrows	Parent or homeowner (must have home equity)	Parent	Parent (for dependent undergrad) or grad/professional student
Loan amounts	$15,000 – $750,000	Up to 100% of school-certified cost of attendance	Up to 100% of school-certified cost of attendance
Interest rates (APR)	8.35% – 16.55% fixed with each draw	Fixed: 3.19% – 17.99% Variable: 4.24% – 17.99%	8.05%, fixed
Fees	Origination fee of up to 4.99%	No origination or prepayment fees	Origination fee of 4.228%; no prepayment penalty
Repayment terms	2 – 5 year draw period; 100% of the loan amount (minus the origination fee) is drawn at the time of loan origination; 5, 10, 15, or 30 years	5 – 15 years typically	10-year standard repayment term with options to adjust
Repayment start	Immediately upon draw	Immediately (or shortly after disbursement)	Repayment begins after full disbursement, but deferment available
Use of funds	No restrictions (can be used for anything)	Qualified education expenses only	Qualified education expenses only
Credit requirements	Credit score of 620+ and sufficient home equity	Good to excellent credit (often 680+ for best rates)	No adverse credit history (no major delinquencies, recent bankruptcy, etc.)
Federal protections	None	None	Eligible for IDR, deferment, forbearance, and Public Service Loan Forgiveness (PSLF)
Cosigner release	Not applicable	Not needed (loan is in parent’s name), but available for student loans with cosigners	Not applicable

As you can see, each of these options—Figure’s HELOC, College Ave’s Parent Loan, and the federal Parent PLUS Loan—comes with its own trade-offs when it comes to eligibility, cost, flexibility, and borrower protections.

Understanding how they compare in real-world terms can help you narrow down your options, but choosing the best one for your family also depends on your specific financial goals, credit profile, and risk comfort level.

Next, we’ll walk through how to decide which borrowing option makes the most sense for you.

How to decide between a Parent PLUS loan, HELOC, or private parent loan

If you’re thinking about borrowing to help your child pay for college, you’re likely comparing three main options: a Parent PLUS loan, a private parent loan, or a HELOC. Each has distinct trade-offs, and the right choice depends on your financial situation, credit profile, and comfort with risk.

Here’s a quick comparison to help you weigh your priorities:

If you…	Best fit
Don’t own a home or have limited equity	Parent PLUS or private parent loan
Want flexibility to use funds beyond education costs	HELOC
Need federal protections like IDR or deferment	Parent PLUS loan
Have excellent credit and want to minimize total cost	Private parent loan or HELOC
Want access to funds across multiple years	HELOC
Prefer fixed rates and predictable payments	Parent PLUS or private loan
Have recent credit issues or limited income	Parent PLUS loan

Before making a final decision, compare interest rates, repayment terms, and fees across multiple lenders. Also consider the long-term impact—on both your monthly budget and your ability to save for retirement or pay off other debts.

The financial aid formula for parents of multiple children just changed and made it worse for these families. My advice is to only go to the school where the child is offered financial or merit aid for most of the costs and avoid those schools where parents would be required to take on Parent PLUS loans.

Catherine Valega , CFP®, CAIA

FAQ

Does a parent student loan affect your credit score?

Yes. Whether you take out a Parent PLUS loan or a private parent loan, it will appear on your credit report and impact your credit score. The loan increases your total debt load and may affect your credit utilization and debt-to-income ratio (DTI). Making payments on time can help build or maintain good credit, but missed or late payments can damage your score.

Does a parent PLUS loan affect getting a mortgage?

It can. A Parent PLUS loan increases your total monthly obligations and debt-to-income ratio (DTI), which mortgage lenders use to assess your ability to repay a home loan. Even if the payments are deferred, the balance may still be factored into your DTI, potentially limiting how much you can borrow or affecting your approval odds. However, strong income and credit may offset the impact.

How quickly can I get approved for a Parent Plus loan or HELOC?

It generally takes two to six weeks to close on a HELOC after submitting your application. With Parent PLUS loans, the process can take up to four weeks. However, Parent PLUS loans also require your child to fill out the FAFSA, which could delay the process.

Can I refinance a HELOC or Parent Plus loan?

Yes, you can refinance both loan types. Remember, though, that refinancing a Parent PLUS loan with a private lender will cause you to lose access to federal loan protections and relief options.

What are the application processes like for both options?

With a HELOC, you’ll submit an application directly to one or more lenders to gauge your approval odds, potential interest rates, and other terms.

You’ll need to provide some personal information and documentation for your income, mortgage loan, property taxes, and homeowners insurance. You may also need a home appraisal, so the lender can determine how much you can borrow.

With a Parent PLUS loan, you’ll start by having your child fill out the FAFSA, which gives them access to all forms of federal student aid. Then, you’ll submit a separate application for a Parent PLUS loan, which requires some basic information about yourself, your child, and their school.

How does either option affect my credit score?

In both cases, making on-time payments can help improve your credit score over time. However, if you miss a payment by 30 days or more, it can damage your credit score.

But because a HELOC is secured by your home, your FICO credit score won’t consider it when calculating your credit utilization rate—the percentage of available credit you use on your credit cards.

How does the economic environment affect HELOC interest rates or Parent Plus loan terms?

Economic conditions affect HELOCs and Parent PLUS loans, albeit in different ways. With a HELOC, for instance, lenders typically base interest rates on the Wall Street Journal prime rate, which is directly influenced by the Federal Reserve’s federal funds rate.

When the Federal Reserve increases the federal funds rate to combat inflation, expect your HELOC interest rate to increase. Your HELOC rate will likely decrease when the fed rate is cut.

Parent PLUS loan interest rates, on the other hand, are determined each year by Congress based on a 10-year Treasury note auction that the U.S. Department of Treasury holds in May. Treasury yields can increase when investors are concerned about an economic downturn and decrease when economic confidence is high.