Providing for family members is one of the most common goals among Merrill Lynch clients. For many, this means giving the gift of education to children or grandchildren. Whether private school fees or college tuition, funding education expenses can add up, especially when you consider college tuition increases have historically ranged between 3% and 4% per year according to the College Board, a rate well above that of inflation. 1
Evaluate your options carefully
With a holistic financial strategy in place, you have likely saved diligently over many years to fund the education costs of your children or grandchildren. While you could simply liquidate these investments as tuition bills come due, you do have another option that you may want to consider to cover education bills—borrowing the funds you need.
Depending on your financial picture, borrowing to fund education expenses can sometimes make more sense than selling investments. Borrowing to cover education expenses can help you:
- Access the cash you need while keeping money invested
- Grow your invested assets, potentially at a rate that outpaces the interest you’d pay on a loan
- Avoid selling investments in down markets or triggering taxes associated with selling appreciated assets
- Leave your investment strategy intact and focus on your longer-term goals
Borrowing to cover education expenses can also help you make up any shortfall between your savings and actual expenses without having to adjust how you are saving and investing for other goals, such as retirement.
Access flexible funding options
Merrill Lynch clients have access to a range of lending options to fund their goals. If you have equity in your home, a Home Equity Line of Credit (HELOC) from Bank of America may be an ideal way to cover tuition and other education expenses, instead of selling investments. A HELOC can offer you:
- Flexibility in how you borrow, allowing you to draw as much or as little as you need, up to your available credit limit, and borrow over time as tuition bills come due
- Convenient access to funds through Bank of America Online Banking, by phone, or by check so making tuition payments or transferring money to the student is easy
- Multiple ways to lower your rate with automatic payments from your Bank of America bank account or by enrolling in Merrill Lynch Banking Rewards for Wealth Management 2
In addition to borrowing against the equity in your home, you can also borrow against the value of your investments with a Loan Management Account® (LMA® Account). Offering a credit line based on the combined value of your eligible assets held at Merrill Lynch, an LMA can provide you:
- Easy access to funds, generally within one day of approval with no minimum draw and no annual fee
- Choice of rate structures, with variable- and fixed-rate loan options, all of which can be managed through a single account
- Continued access to your investments even though you have used them as collateral, subject to certain restrictions
Both of these lending options may be a smart way to access the cash you need, when you need it, allowing you to fund the education expenses of a loved one while keeping the funds you have set aside invested or redeployed to fund another one of your goals.
3 Questions to Ask Your Advisor
- What options do I have to fund my loved ones’ education expenses?
- What are the pros and cons of borrowing the money I need instead of liquidating investments?
- If I decide to borrow, how does this fit into my larger financial strategy?
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Risks of LMA Borrowing
Securities-based financing involves special risks. You should review the LMA Loan Agreement and related documents and disclosures carefully and consult with your own independent tax and legal advisors.
- A decline in the value of your collateral assets may require you to provide additional funds or securities to avoid a collateral maintenance call. You can lose more funds than are held in the collateral account. The LMA account is a full-recourse loan and you will be liable for any deficiency.
- The Bank can force the sale or other liquidation of any securities or other investment property in the collateral account and, unless otherwise required by law, can do so without first contacting you.
- You are not entitled to choose which securities in the collateral account are liquidated or sold.
- The Bank can change its collateral maintenance requirement at any time without notice to you.
- You are not entitled to an extension of time to satisfy the Bank’s collateral maintenance requirement.
- There may be adverse tax or other consequences to you if securities are sold or otherwise liquidated by the Bank.
- The LMA account is an uncommitted facility, although loans to individuals and trusts may be committed in an amount not to exceed $100,000. The Bank may demand full or partial repayment at any time and any commitment may be immediately terminated.
- For fixed-rate advances and term loans, principal payments made in advance of the end of the applicable fixed-rate period, whether voluntarily or involuntarily, (due to demand or liquidation by the Bank,) may be subject to a substantial breakage fee as determined by the Bank.
- Some restrictions on the use of LMA account proceeds may apply under the terms of the loan documents and applicable laws and regulations.
1 savingforcollege.com “Tutorial - The real cost of higher education” (https://www.savingforcollege.com/tutorial101/the_real_cost_of_higher_education.php)
2 Home Equity Line of Credit (HELOC) relationship interest rate discount of 0.50% is available to clients who are enrolled or are eligible to enroll in Banking Rewards for Wealth Management and have a three-month combined average balance of $250,000 in qualifying Bank of America deposit, Merrill Edge, and/or Merrill Lynch Investment account(s) at the time of home equity application (for co-borrowers, at least one applicant must be enrolled or eligible to enroll). The amount of the discount is based on your eligibility at the time of home equity application and is not subject to adjustment. Eligibility will be available three or more business days after the end of the calendar month in which you satisfy the requirements. SafeBalance Banking® accounts do not count toward the account or balance requirements, and do not receive the fee waivers and other benefits of the program. Benefit is non-transferable. This discount can be combined with certain other home equity interest rate discounts. Some clients may have access to preferred pricing in lieu of the interest rate discount; ask for details.
Banking, mortgage and home equity products offered by Bank of America, N.A., and affiliated banks, Members FDIC and wholly owned subsidiaries of Bank of America Corporation. Equal Housing Lender. ©2018 Bank of America Corporation. Credit and collateral are subject to approval. Terms and conditions apply. This is not a commitment to lend. Programs, rates, terms and conditions are subject to change without notice.