What is the best way to finance your kids college tuition payments? Loans, home equity??

Question

Would it be better to use 401K loan, home equity, etc.

Answer 1

Home equity loan -- interest is tax deductible

Answer 2

Depending on the age of your children - if they are over 14-15, liquid savings accounts, student loans and grants would be best. Check with your state to see if you can contribute to a 529 plan - if your children are very young, you can contribute to this state-run fund and pay toward a tuition today that will cost much more in the future due to inflation - even low (2%-3%) inflation. One caveat is that some states' plans are better than others, of course, and the expenses (listed as "expense ratio") can be high (anything over 1%). You could check with Money magazine or SmartMoney websites (or the library) that reviews these programs from time to time. I would strongly discourage you from using your 401(k) loan option. While there are Student Loans to pay for tuitions, there are no Senior-aged Person Loans to pay for what could be a 20-year retirement. Plus, you're putting in pre-tax dollars into your 401(k) and if you borrow from it, you will be paying it back with after-tax dollars. Then, when you reach retirement, you will pay taxes a second time when you draw it out as ordinary income - hence double taxation.

Answer 3

home equity loan is usually "cheap money"
student loans are a 2nd choice...the interest rate is usually a bit higher, but it's still tax-deductible

any money paid should be paid directly to the school (not to the student to pay the school) to keep tax deductions clean & completely accurate

Answer 4

Talk to a financial advisor who is experienced in college planning. The proper steps can maximize your child's financial aid.

Your 401k and IRA should be the last resort.

Answer 5

Refinance your home and take enough $$ to pay for college.