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A parent recently explained to me how she planned to pay her son’s college tuition with a $100,000 home equity line of credit. Her bank had offered her one carrying a fixed interest rate of just 4%. I was a bit surprised, since many banks have gotten out of the HELOC business, following the housing market crash. Even so, was this a smart idea for this parent? She subsequently told me that her son had received a full ride to one college, although he wasn’t sure if he wanted to attend it.

Here’s my advice for this parent and others when it comes to paying for college:

1. Insist going where the free money is, first.

If a nice college offers your son or daughter a full ride—even if it’s not the first choice school—bank on this exceptional opportunity to get a free college education and graduate debt free. What largely separates the “haves” versus the “have nots” in any economy, especially this one, is financial freedom…and graduating with a six-figure student loan carries a great deal of financial and emotional grief, limiting one’s ability to advance as quickly as hoped. No matter if your diploma says Harvard or Stanford.

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2.  Consider federal loans before any other loan instrument.

A subsidized federal Stafford loan currently carries a 3.4% interest rate. Unless your bank offers a HELOC with a lower rate—which is pretty tough to find—consider a Stafford loan first, as it would be the cheaper loan vehicle. Keep in mind, too, that rates on HELOCs are usually not fixed. While you may be wowed with an initial low rate, it may be subject to change every billing cycle.

3. Know the risks of HELOCs

A home equity line of credit has its risks, just like any other type of line of credit. Failure to pay what you withdraw on time may result in rising interest rates and fees. HELOCs, unlike credit cards, though, are tied to your home—so the stakes are far more serious. Failure to pay can mean losing your home. And with the housing market’s volatility, what’s not to say that the equity in your home—after you take on and max out a HELCO—dries up? After adding up your current mortgage and HELOC, you may end up owning more than your home is actually worth, which, for some, could mean retirement jeopardy.

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