If William Shakespeare and Guy Clark collaborated on a song, it would sound like Hayes Carll’s “Beaumont.” I shared my thoughts with him; maybe that’s why he opened his last set with it. He also said you shouldn’t name drop. Ray Wylie Hubbard told him that Willie Nelson said as much, but sometimes it happens.
Earlier this month, New York Times columnist Ron Lieber interviewed me. Interestingly we spent most of the interview talking about County Highway 30A. Lieber and that his daughter took a New Orleans to Tampa road trip, and Grayton Beach State Park was their highlight. “You drove by my office,” I told him. Longtime locals complain how SoWal has changed and how much better it was back in the day. Lieber reminded me we are too critical and don’t appreciate what we have. “It was the best part of our trip.”
Back to business, since the new tax law eliminated home equity interest as an itemized deduction, Lieber wanted to see how or if the changes affected college planning. With a six-figure tuition bill looming using home equity seems a logical choice and allows the student to enter the workplace with less student debt. While federal aid ignores home equity, many private colleges look at it and expect families with significant home equity to pay more. Another negative for using home equity is in a rising interest rate environment a borrower could spend more than expected.
Except for grandchildren, most of my clients come to me after college tuition bills are a distant memory. Using home equity for college tuition is a bad idea. During the Great Recession, I did financial triage for two couples who used home equity for college tuition. When job losses blindsided them, they couldn’t keep up with the payments. With declining home values refinancing was impossible so foreclosure was their only option. At the risk of sounding like a general fighting the last war instead of the next one, home equity would be better used for retirement versus tuition. While your job may be secure your health may not be; health issues might affect the ability to work. Today’s low-interest-rate environment won’t last forever either.
If you use a home equity loan for tuition, self-control is essential. Plan on paying it back; don’t expect rising home values to eliminate it magically. The long-term goal should be to have minimal fixed expenses like a mortgage during retirement. Taking on additional debt is a risky strategy. Using home equity can threaten your retirement. Prestigious private schools can open doors for your children but don’t let a home equity loan be a retirement pitfall. Eliminating the home equity interest deduction could make home equity loans less tempting. Retirement planning is difficult, don’t put yours at risk.
You can’t always get what you want, but Buz Livingston, CFP can help figure out what you need. For specific recommendations, visit livingstonfinancial.net or come by the office in Redfish Village, 2050 Scenic 30A, M-1 Suite 230.