Should I Use Home Equity To Help Pay For College?
With my eldest child just a few years away from college and two more in the pipeline at intervals behind, I wonder how we're going to help the kids pay for higher education. Just how much do I/should I pay for their higher education?
Though all of my thinking however, it never occurred to me to use my home's equity to pay for the education. I know others who've done it and they now find themselves in their fifties with two mortgages on their home, but that option simply never entered my calculations. The extent to which it's been done - and the effect that it's had on education rates - was surprisingly brought home in a recent Wall Street Journal article, Housing Bust Makes Paying For College Harder.
The article's gist is that a significant portion of the tuition payments are being made by parents who are borrowing against the equity in their home and unfortunately, the decline in housing values means that that financing mechanism is being shut down. This is especially the case in which lower wealth families - those with income less than $65,000 and what they define as "housing wealth" less than $125,000 - have used the home ATM for education. A study noted that for each $10K rise in "housing wealth", which I assume to mean equity, in the four years prior to the child's college age for a family in this stratum meant that there was more than a 6% likelihood of that child attending college. With housing values declining and mortgage lenders cutting back on second mortgages, the fear of the study's authors is that this will create a significant loss of higher-trained, college educated workers for the labor force.
This is one of the reasons that I don't particularly care for social scientists since they focus on the academic, ignore the human side of the equation and help perpetuate a con. The verbal sleight of hand is that companies want a labor force that's competitive with the global population and there's truth that many of our students are behind the curve. But when I follow the business news and announcements, the real value-added jobs are being sent overseas because the cost of labor is significantly cheaper and rarely do I see that it's because Frank can't add as well as Rashid and Jagdish.
The expectation of the past several generations is that the parents pay to educate the children, and my guilt exists because that's what my own parents did for me. But the economic environment has changed dramatically. Our parents and grandparents owned their home free-and-clear for their dotage, our generation faces the senior years with the prospect of having to continue paying for housing with far less money to pay for that housing. And with stagnant or declining incomes, the burden on our own children will be increased. Yes, their student debt - a toxic debt if ever there was one - will be minimized while I can deduct the interest payments, but I truly don't want to spend my senior years being financially dependent on my children. It does hearken back to past generations in our history when families were multi-generational with kids tended to by grandparents, but it's not something that we necessarily want to pursue.
I can't speak for my wife but I'm truly uncertain about how far to take the financing aspect. My sense is that it will be a possibility but one contingent upon the child/student; if we haven't seen you put out to get the grades necessary to compete, then we won't put out the money for more than the standard college degree. But regardless of the decision, it will be weighted down with emotional baggage that will linger long after they're out.
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