Debt incurred to finance an education is often called "good debt". That's because it's an investment -- there is a significant payoff waiting at the end in the form of marketable skills and higher lifetime earning power.
Given skyrocketing tuition rates, however, it's not always easy to find the sources to fund higher education. Additionally, there are pros and cons to each possible funding method.
To help you make the right decision, let's review three common methods for paying for a college education.
While student loans are the most obvious way to pay for an education, navigating the process successfully can be a challenge. That's because there are a variety of different loans, all with varying terms, stipulations and repayment options.
The most fundamental distinction involves federal student loans vs. private student loans. Federal loans offer many benefits that private loans generally do not. Interest rates are often fixed and lower than private loans; you don't have to pay the loans back until you graduate; there are repayment options that are income-based, you may not need a credit check and the government will cover the interest for you while you're enrolled with a subsidized loan. Generally speaking, borrowers should exhaust all their federal loan options before considering a private loan.
Home equity line of credit
A home equity line of credit (HELOC) allows you to borrow against the equity you've built up in your residence. Because it's a line of credit, you can withdraw funds as needed -- you don't have to take the full amount for which you've been approved.
Using a HELOC to help pay for college has its advantages, including flexibility and tax deductibility. Yet it should be noted that the onus for repayment will fall squarely on parents. With most federal student loans, no parental co-signature is required.
Scholarships, grants and work/study
There's nothing better than free money, right? Scholarships and grants aren't exactly free, of course; they require you to qualify either via your own accomplishments or through financial need. Yet a smart approach to scholarships and grants can greatly reduce the amount of student loan debt that's accrued.
Pell Grants, Cal Grants and other forms of financial assistance should be a core focus of anyone seeking to finance an education. Work/study programs are another great way to lower college expenses.
If you're seeking to finance a college education in a smart and responsible way, KeyPoint Credit Union is here to help. Visit our website to learn more about how we can assist you.