Increasing Number Of Americans Leverage Their Mortgage To Cover Escalating College Costs, According To Quicken Loans

  • November 11, 2003

Parents Refinancing, Tapping Home Equity To Pay For Children’s Education

Livonia, Mich. – Nov. 11, 2003 – According to Quicken Loans, the 23rd largest home loan lender in the U.S., an increasing number of Americans are leveraging their mortgages to finance their children’s college education. With college tuition, room and board, and other educational fees on the rise, many parents are finding that their mortgage is a powerful financial tool that can help them cover the cost of college.

According to The College Board’s 2003 Trends in College Pricing Report, the average cost of tuition and fees at all four-year collegiate institutions, when adjusted for inflation, is now 47 percent higher than it was ten years ago. The average cost of tuition and fees at all private institutions, also adjusted for inflation, is now 42 percent higher than it was a decade ago.

TUITION AND FEES AT 4-YEAR COLLEGES: 1993-1994 VS. 2003-2004
(IN CONSTANT 2003 DOLLARS, ADJUSTED FOR INFLATION)

  93-94 Academic Year 03-04 Academic Year 10-yr Change % Change
4-yr, public (New England) $3,949 $6,035 $2,086 53%
4-yr, private (New England) $14,755 $25,093 $10,338 70%
4-yr public (Middle States) $4,221 $6,350 $2,129 50%
4-yr private (Middle States) $14,690 $21,611 $6,921 47%
4-yr public (Southwest) $1,946 $3,756 $1,810 93%
4-yr private (Southwest) $10,159 $15,467 $5,308 52%

“Home appreciation has been the silver lining in an otherwise turbulent economic environment and today American homeowners have roughly $7.5 trillion in equity,” said Bob Walters, chief economist at Quicken Loans. “Savvy consumers understand that the after tax cost of borrowing from oneself via a home equity loan can be as low as 4 percent, because the interest is usually tax deductible.”*

Gary LaFontaine, Jr., a quality inspection manager from Elkton, Maryland tapped the equity in his home with a traditional home equity loan so he could cover the cost of his daughter’s college education. She attends Salisbury University in Salisbury, Maryland where tuition, fees and room and board plus miscellaneous expenses for an in-state student are roughly $14,000 per year**.

“With college costs rising every year, I really wasn’t sure how I was going to pay for my daughter’s college education,” said LaFontaine. “Leveraging the equity in my home freed up the money I needed. I view borrowing the money from myself a far better option than running up credit cards or taking out loans that don’t give me the tax benefits of a home equity line.”

Some consumers don’t yet have children in college, but are planning for their future. James Orpilla, a facilities manager from Palmdale, California refinanced his 30-year fixed-rate mortgage with an interest rate of 7.75 percent into a five year adjustable rate mortgage at 5.625 percent. He’s reduced his monthly mortgage payment by almost $500, which he is putting in a college education fund for his teenage son.

Consumers who wish to learn more about how they can leverage their mortgage should visit the Quicken Loans Web site at www.quickenloans.com. The site contains a variety of helpful content and useful calculators that consumers can access to understand how they can lower their monthly mortgage payment and use the difference for their children’s education.

*Consumers should consult their tax advisor for further information.
**SOURCE: U.S. Department of Education, National Center for Education Statistics, Integrated Postsecondary Education Data System (IPEDS), Institution Information for Salisbury University. Results based on tuition and fees, books and supplies, and room and board for the 2002 – 2003 school year.

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