Paying for school with parents' home equity loan?

[memoriax]

I've finally been accepted into dental school and my parents are being really generous and offering to take out a home equity loan on our house to pay for part of my tuition. The house has already been paid off completely, and the current interest rate is 3.125% (as opposed to unsubsidized loans at 6.8% or PLUS loans at 7.9%). My parents are still working so they will pay off the loan while I'm in school, and then I will take over when I graduate and make the payments myself.

Here are some pros and cons off the top of my head for taking out the home equity loan:

Pros:
-Lower interest rate (3.125%)
-Interest is tax deductable

Cons:
-Interest rate can be variable
-Cannot defer or get forbearance
-Have to pay loans right away (whereas after graduation your federal loans can be deferred for 6 months)
-If you default on a home equity loan, you can lose the house


Obviously there are risks to this, so I wanted to get your guys' opinions. Should I take their offer or just pay for school myself through unsubsidized loans + private loans?

---

Members don't see this ad.

 

[Igor4sugry]

Your parents are probably close to retirement and have their house paid off. So why would you put their house and their credit history in jeapordy? How much will your tuition be? If your total loan dept will be high (>150k), then you and your parents may have difficulty paying the loan, in which case you will place their house (and their retirement) in danger.

Just take out loan in your name and let your parents live in peace. For some reason the parents of current 20-26year olds thinks its ok to spend all their retirement money and take out home equity loans for their kids education. They are soon to be done with their work life, we are just starting. Let them finish working in peace and not have to worry about making payments on a >$150k loan.

 

[dpmd]

Also, I thought only certain expenses made for deductible home equity loan interest. Should check the IRS publication to be sure.

The other issue is in the event of your death or total disability they would still be on the hook for the money (whereas a student loan would get cancelled)

 

[dpmd]

If your parents wanted to be generous they could pay some money on your student loans every month (the payment they were thinking of making on the home equity loan) or just pay that money towards an expense of yours (rent or whatever) so you take less loans. That way if they needed to (or wanted to) stop they could and it would be no big deal.