In addition to federal aid programs and private student loans there are other college financing options. These options are viewed by some as less desirable because of their drawbacks, but, it is up to each student to determine the best way to pay for school. These may be the best options for you and/or your family, so if they work best for you, use them!
Here are some of the better-known options sometimes used to pay for college:
401(k) loan
Typically, you can borrow up to half the funds in your retirement account, up to $50,000, but you have to pay back the money within five years or it becomes classified as a withdrawal and becomes taxable income. In families with multiple students, there is often not enough money to cover the amount necessary to pay for college.
Home equity loan
Home owners can leverage the equity they’ve built in their home to pay for college. However this can erase years in the value of appreciation of your home — most families' single most valuable asset. There is also the risk of losing the home. And again, for families with several children in college, the equity in their home will probably not cover all college expenses. On the plus side, home equity loan interest is often tax deductible. (See a tax professional for complete details.)
Credit cards
Most consumers know that accumulating massive credit card debt is not a good idea. The immediacy and ease of putting a college education on your credit card may seem attractive, but the consequences can be disastrous. While there might be cases when it is better to use a credit card than not to get a higher education at all, experts agree that financing a college education with a credit card should be a last resort.
Learn more about credit card debt.