How Grandparents Use Home Equity to Fund Their Grandkids’ College Tuition

Last updated: July 2025

As college tuition continues to rise, more grandparents are stepping in to help. 

For retirees who have paid off most or all of their mortgage, a home equity line of credit (HELOC) offers a practical way to fund these contributions without liquidating retirement assets or disrupting monthly cash flow.

This strategy lets grandparents:

• Help loved ones avoid student loan debt
• Make tax-efficient gifts
• Support family goals while maintaining financial flexibility

For many, it’s not just about affordability—it’s about meaning. Helping a grandchild graduate debt-free can be one of the most rewarding uses of home equity.

Start an application with HomeEQ to discover in minutes how much you might be able to contribute to your grandkids’ future.

How does a HELOC work when used for education expenses?

A HELOC is a revolving credit line based on the equity you’ve built in your home. Once approved, you can draw from the line during the draw period (typically 5, 10 years), often making interest-only payments during that time.

When applied toward education, HELOC funds can be used for:

• Tuition and fees
• On-campus or off-campus housing
• Books, laptops, and course materials
• Travel costs to and from school
• Meal plans or groceries

You control how much and when to borrow. For example, if your granddaughter starts college this fall, you can draw just enough to cover her first semester and leave the rest unused until the next tuition bill arrives.

Learn how a HELOC works with HomeEQ.

What are the benefits of using home equity vs. other college funding tools?

Many grandparents compare a HELOC to other options, such as 529 plans, retirement account withdrawals, or private student loans. Each method has trade-offs, but a HELOC can offer distinct advantages:

1. Lower interest rates: Compared to PLUS loans or private loans, HELOCs often offer better rates, especially for borrowers with strong credit.
2. Flexible borrowing: Borrow only what you need, when you need it. No penalties for early payoff.
3. Preserve retirement savings: Avoid pulling from IRAs or 401(k)s, which could trigger taxes or reduce your long-term income.
4. No restrictions on use: Unlike 529 plans, there are no limitations on how HELOC funds must be used, and you’re not penalized for non-qualified expenses.
5. May avoid FAFSA impact: HELOC funds are not considered income, which may help preserve your grandchild’s financial aid eligibility.

Illustrative scenario: Eleanor and Frank used a HELOC from their paid-off home to contribute $20,000 to their grandson’s freshman year at a state university. They paid interest-only on the HELOC while he was in school and began repaying the principal once he graduated. This approach gave them the flexibility to help without tapping their pension income.

Calculate your HELOC amount with our easy steps.

What should grandparents consider before tapping into home equity?

While a HELOC can be an efficient financial tool, it also involves certain risks and responsibilities. 

Consider the following:

• Your home is on the line: A HELOC is a secured loan. Failure to repay could put your home at risk.
• It affects estate planning: HELOC balances reduce the net equity in your estate, which may impact inheritance planning.
• Variable interest rates: Most HELOCs come with adjustable rates. If rates rise significantly, so can your payments.
• Medicaid eligibility and gifting rules: Large financial transfers could impact Medicaid lookback rules or be considered countable assets. Always consult an elder law attorney if this is a concern.
• FAFSA considerations: HELOC withdrawals are not considered income, but if you transfer funds directly to your grandchild, they might be treated as a financial resource. Consider paying the institution directly.
• Insurance and age-related underwriting: Some lenders require proof of income or have age-related guidelines. Retirees should ensure their fixed income supports repayment.

It’s wise to speak with a financial planner before moving forward, especially if you have a fixed income or are unsure about long-term repayment.

How to qualify for a HELOC as a grandparent

Qualifying for a HELOC is primarily based on your credit profile and the equity in your home. Here’s what you’ll generally need:

• Home equity of at least 15%, 20%
• Credit score of 620 or higher (700+ preferred for best rates)
• Reliable income from pensions, retirement accounts, or Social Security
• Low debt-to-income (DTI) ratio

Lenders will ask for:

• Mortgage statements
• Property value estimates (sometimes an appraisal)
• Proof of income (pension statements, 1099s, etc.)
• ID and recent credit history

With HomeEQ’s digital application, you can check your eligibility in minutes using a soft credit pull—no paperwork or appointments needed.

Illustrative scenario: After reviewing their options, George and Linda used a HELOC to fund two years of college tuition for their twin granddaughters. Their home was fully paid off, and they used just $40,000 of their $100,000 line. The interest-only draw period kept payments low until both girls graduated and entered the workforce.

FAQ: HELOC for grandchild’s college tuition

Does this affect my grandchild’s financial aid?

It depends. Paying the school directly may reduce the impact on FAFSA. Giving cash directly could be counted as a financial resource for the student.

Can I pay the school directly from my HELOC?

Yes. In fact, paying the institution directly may simplify gift reporting and reduce aid impact.

What if I want to use my HELOC gradually?

HELOCs are designed for flexible use. You can draw in stages over several years.

Can I deduct the interest?

Generally, no, unless the funds are used to improve the home securing the loan. Education-related expenses do not qualify for interest deduction.

What happens if I sell my home during the repayment period?

The HELOC balance will need to be paid in full at closing. If you plan to downsize, consider how this might affect your cash proceeds.

HomeEQ can help you find your grandkid’s tuition solution

A HELOC offers a strategic, flexible way for grandparents to support their grandkids’ education without derailing their retirement plans. With thoughtful planning, it can become a powerful tool for building a lasting legacy.

Check your eligibility today. It’s fast and easy, and there’s no obligation or cost to apply.