Mother and daughter pose for a photo in front of a car trunk full of college dorm supplies.

Comparing SBLs and student loans to cover tuition

You’ve likely heard of student loans and 529 plans to cover tuition costs. But there’s another innovative option worth considering.

Education is a worthwhile investment, one that appreciates over a lifetime. But it’s also a major expense, and that’s unlikely to change anytime soon.

According to the Education Data Initiative, the average cost of college has more than doubled in the 21st century. When you factor in books, supplies and daily living expenses, the average total cost for a full-time student to attend a four-year university is $141,320.

When it comes to funding a child’s education without breaking the bank, you’ve likely heard of 529 plans. These valuable education savings tools allow you to invest after-tax dollars in an account that will grow tax-deferred and can be distributed tax-free for qualified expenses.*

But there’s another strategy you might not have considered: a securities based line of credit (SBL).

Tallying college costs in the United States

$25,487 - average annual cost of college for an in-state student

$53,217 - average cost of an academic year at a private traditional university

6.8% - annual growth rate of college costs

$400,000 - ultimate cost of a bachelor’s degree, factoring in student loan interest and loss of income


A savvy strategy

Most investors know they can borrow against the value of their home should they need fast and significant liquidity. But many don’t know they can also borrow against the value of their investment account through an SBL.

A versatile alternative to traditional financing, an SBL allows you to leverage non-retirement-invested assets to secure a flexible line of credit by pledging your investment portfolio as collateral. You can use this loan to pay for everything from a dream home to a child’s education.**

Since an SBL is backed by your portfolio, you can access cash quickly without disrupting your asset allocation. The repayment process for an SBL is often flexible as well. Just make sure you maintain the required collateral amount in your account.

SBLs versus student loans

There are several reasons an SBL could be more suitable than other, more conventional methods of paying for an education, such as student loans:

  • An SBL can help you potentially save on borrowing costs and fees compared to traditional student loans.
  • Applying for an SBL is often easier than applying for a student loan. And once approved, you can access funds quickly through check, wire or online.
  • An SBL has a more flexible repayment structure than most student loans, including the option to pay only the interest.
  • You can set up an SBL in your child’s name.

Investing in your child’s future – and your own

Paying for a child’s college education is both a life-changing gift and a significant investment. That’s why it’s essential to examine your options and determine which best aligns with your needs and goals.

And remember, you can always consult your advisor for guidance throughout this process. The goal is to invest in your child’s future while preserving yours.


*Earnings in 529 plans are not subject to federal tax and in most cases state tax, as long as you use withdrawals for eligible education expenses, such as tuition and room and board. However, if you withdraw money from a 529 plan and do not use it on an eligible education expense, you generally will be subject to income tax and an additional 10% federal tax penalty on earnings. As with other investments, there are generally fees and expenses associated with participation in a 529 plan. There is also a risk that these plans may lose money or not perform well enough to cover education costs as anticipated. Most states offer their own 529 programs, which may provide advantages and benefits exclusively for their residents. An investor should consider, before investing, whether the investor’s or designated beneficiary’s home state offers any state tax or other benefits that are only available for investments in such state’s qualified tuition program. Such benefits include financial aid, scholarship funds and protection from creditors. The tax implications can vary significantly from state to state.

**A securities based line of credit (SBLC) may not be suitable for all clients. The proceeds from an SBLC cannot be (a) used to purchase or carry securities; (b) deposited into a Raymond James investment or trust account; (c) used to purchase any product issued or brokered through an affiliate of Raymond James, including insurance; or (d) otherwise used for the benefit of, or transferred to, an affiliate of Raymond James. Raymond James Bank does not accept RJF stock or any securities issued by affiliates of Raymond James Financial as pledged securities toward an SBLC. Borrowing on securities based lending products and using securities as collateral may involve a high degree of risk including unintended tax consequences and the possible need to sell your holdings, which may lead to a significant impact on long-term investment goals. Market conditions can magnify any potential for loss. If the market turns against the client, he or she may be required to quickly deposit additional securities and/or cash in the account(s) or pay down the loan to avoid liquidation. The securities in the Pledged Account(s) may be sold to meet the Collateral Call, and the firm can sell the client’s securities without contacting them. A client is not entitled to choose which securities or other assets in his or her account are liquidated or sold to meet a Collateral Call. The firm can increase its maintenance requirements at any time and is not required to provide a client advance written notice. A client is not entitled to an extension of time on a Collateral Call. Increased interest rates could also affect SOFR rates (or any successor rate thereto) that apply to your SBLC causing the cost of the credit line to increase significantly. The interest rates charged are determined by the market value of pledged assets and the net value of the client’s non-pledged Capital Access account. Securities based line of credit provided by Raymond James Bank. Raymond James & Associates, Inc., and Raymond James Financial Services, Inc., are affiliated with Raymond James Bank, member FDIC.

Asset allocation does not guarantee a profit nor protect against loss.

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