Life coach Victoria Krayna has financed six college educations, including her own. She, her husband and her four kids have learned plenty. One of the most important lessons of all those years of education: Borrow wisely—life is unpredictable.

When Krayna’s son’s tuition disappeared in the post-9/11 market crash, Krayna and her husband refinanced their home to pay for his education. It might have been a successful strategy, says Krayna, but then her husband was hit by a car and incurred injuries that affected his personality. After 28 years of marriage, the couple divorced, leaving Krayna with the mortgage.

Krayna rebounded, but she says that her experience has taught her not to count on the future.

Other financial experts echo Krayna’s cautions. They say that while it’s sometimes necessary to borrow against the equity in your home, you should never finance an education with credit cards or other forms of consumer debt. Under only the rarest circumstances should you tap retirement funds.

And most importantly, you should always exhaust every penny available to you from the government, your school and scholarships before you look at non-traditional funding.

Do Your Paperwork

Too many students assume they won’t qualify for financial aid, says Jacqueline Moreno, director of college access initiatives for the Illinois Student Assistance Commission, a state agency that helps students finance college education. “You should always apply—always, always, always, always.”

That’s because no one, not even experts, can psych out the federal formula for financial aid. The formula is thirty pages long and “everything you can possibly imagine goes into the formula,” says Moreno.

Realistically, though, online students can face especially high hurdles in obtaining financial aid because of their accelerated schedules, says Andrea Cross, associate dean for financial aid at Saint Joseph’s College of Maine Online. So suppose you have exhausted the financial aid process and still owe tuition? What then?

Whatever you do, don’t use your credit cards to pay tuition.

Most financial experts also advise against borrowing from retirement funds. “I never encourage anyone to borrow from retirement,” says Moreno. “You plan for your retirement and you plan for education on two parallel paths that don’t intersect. You don’t get a forbearance on retirement. You don’t say, 'I’m not ready to retire yet, can I have a few more years?'”

There’s a subtler reason to lay off borrowing from retirement, says Felicia Caldwell GoPaul, a certified college planning specialist. Money you withdraw from an IRA becomes income, and the more income you have, the less financial aid you qualify for.

One of GoPaul’s clients regularly withdrew money from her IRA to pay for her daughter’s education. What the client didn’t realize was that for every $10,000 dollars she withdrew, she disqualified herself from $4,700 worth of financial aid.

As for home equity, don’t count on it: These days, the mortgage crisis and falling real estate markets have left some owing more than the current value of their homes.

Even if home equity borrowing is an option, Moreno and other experts caution students never to borrow more than they need—not even for a little spending money. “The question for people in that situation is, would you take out a home equity line of credit to have extra spending money? Because that’s what you doing,” she says.

Beware Consumer Debt Masquerading as Student Loans

Moreno isn’t a fan of private educational loans, like those offered by Sallie Mae and banks. She says they’re regular consumer debt masquerading as student loans and advises to students to use them only as “last options.”

If students must tap private loans and home equity, they should carefully compare loans, looking at:

• interest rates
• minimum payment required
• maximum time allotted for repayment
• incentives for automatic payments and consecutive on-time payments
• method by which interest is calculated
• options for deferment and forbearance.

For some online students, namely those on an accelerated schedule, home equity and retirement borrowing may make sense, says Saint Joseph’s Cross. An accelerated schedule can mean students can pay back their loans quickly, before interest mounts or retirement comes knocking.

But Gopaul reminds students not to be too optimistic about how much money their new degrees will earn them, nor how quickly—often students must switch jobs before they get the raise they’re counting on. And Krayna’s story should provide a caution against predicting the future.

Having sent six people to college, Victoria Krayna has borrowed against both home and future, but she also doesn’t like to limit her thinking about financing to home equity loans and 401(k) borrowing. When coaching students about education financing, she tells them to cut out luxuries: Have a garage sale, yank your kid’s cell phone, stop getting your hair and nails done. “Sell your husband’s car,” she says wryly.


Related Resources

Should You Borrow to Attend College Online?
Should You Trust Your Online College's Financial Aid Officer?
Guide to Scholarships and Free Money
Consumer's College Cost Cutting Guide


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