Should I refinance to pay for college?

If you’re like many parents with a college-bound child, what you hold in savings may not be enough to cover four years’ tuition. So as you contemplate how to cover the shortfall, should you consider tapping into your home equity?

Refinancing your mortgage or applying for a home equity line of credit can be tempting, since interest rates on these tend to be significantly lower than student, parent and personal loans. They’re also fairly easy to access as long as you have a decent credit score and more than 20 percent equity in your home.

But just because you can tap home equity for college doesn’t mean you should. The biggest argument against doing so is that taking any loan out against your home requires offering your house as collateral. Should you have trouble repaying that debt in the future, your ownership of the home can be jeopardized.

Contrast that to parent or personal loans, or student loans your child takes out. Although these will carry higher rates, they aren’t secured by your home. Some education-oriented loans also offer flexibility for repayment should you fall on hard times, with policies for temporarily deferring payments or even forgiving the loan.

If you still decide that tapping home equity is your best avenue for making college ends meet, note that a home equity line of credit may be better for families applying for financial aid, since a cash-out refinance can hurt your eligibility calculation. You can also run into financial aid ramifications with home equity lines of credit, if you don’t time your withdrawals carefully.

As with many tempting uses of your home equity, putting your house on the line can be a risky proposition. So you owe it to yourself and your future to carefully consider all of the available options.