Figuring out how much you need to save to send your kids to college can feel stressful. The average cost of in-state tuition and fees for U.S. public colleges increased 80% between 2000 and 2014, according to ProPublica. If your child’s financial aid award letter fell short of what you were expecting, coming up with the difference can be a challenge, but it may be something you feel passionately about doing.
Hopefully, you’ve saved enough over time to cover that difference. But with the high cost of college, sometimes families, despite their best efforts at saving, have to borrow money to make college a reality for their kids. Here are a few borrowing options you may want to avoid when it comes to paying for college.
1. Credit cards
A Sallie Mae study shows 2% of families in 2016 used credit cards to pay for college, charging an average of $4,443 — nearly double the amount from 2014. While that percentage seems low, the amounts borrowed are substantial. Experts agree that using credit cards to pay for college is typically not a good idea because they often have higher interest rates than other borrowing options and therefore can be the costliest funding source to repay.
2. Home equity loans
According to the same Sallie Mae study, another 2% of families used home equity loans, borrowing an average of $7,406. Taking out a home equity loan may also not be the best strategy. First, proceeds may count against your child when it comes to financial aid. Additionally, borrowing against your home may have tax implications — be sure to check with your tax advisor if you’re considering a home equity loan.
3. Relying on generous family
According to a 2014 study, nearly half of grandparents expect to contribute to their grandkids’ college savings, with more than one-third expecting to give $50,000 or more — but that doesn’t mean your child’s grandparents are willing to do so. Don’t rely on well-meaning relatives to give or lend you money for your child’s college education. It can create tension in the family and be uncomfortable if you aren’t able to repay.
4. Retirement funds
You’re already saving for retirement, so why not dip in and use that to help cover your child’s college costs now, right? This is another option that has some negative consequences. By taking money from your retirement savings, you’re compromising your nest egg and the matching contributions from your employer. Withdrawing money from your retirement savings or other investments may also come with penalties or tax repercussions. It can also lead to trouble for you in the future, since so many families are already underfunded for their retirement years. The bottom line: Your retirement savings should almost always take precedence over everything else.
Paying for college is a dream many parents have for their children, and it’s without a doubt a noble one. But there are plenty of avenues available to try, so be sure to consider all your options before choosing a method that could compromise your or your child’s financial future.