You can BORROW against your 401(k) up to 50% of your vested balance. If you have a lot of employer contributions in the plan but haven’t been there long, you may not have vested yet. If the loan is for something other than a primary residence (like school tuition), you must pay back the loan within FIVE YEARS. Interest rate is generally prime plus 1-2%. If you leave your employer, you must pay back the balance immediately or it becomes taxable income, subject to fed and state taxes plus a 10% early distribution penalty, assuming you are under age 59.5.
You could instead take a hardship withdrawal, but the taxes and penalties will be almost 50% of the amount you request.
I used to be a 401k administrator. DON’T DO EITHER OF THESE. This money is for your future. Especially since you are a single parent and are getting back on your feet.
if you own your home and you have equity, a line of credit (HELOC) might be a better option. Depends on the interest rates and you credit score. We set up a HELOC to cover any unexpected college expenses because we wanted to avoid PLUS loans, but recognize that is not an option for everyone.
If you sign a PLUS loan on your son’s behalf, take out a term life policy on him to cover the amount of the loan. PLUS loan providers WILL come after the surviving co-signers. Every couple years there’s a terrible story about a grandmother who cosigned for a grandkid. the student can’t/won’t pay/is disabled or worse, and grandma is getting her Social Security check garnished. (This was why I didn’t co-sign any of DH’s PLUS loans for grad school, even though we had been married several years when he took them out.)
“How “responsible” is it to borrow from your small 403b if you don’t have high earnings?”
It’s not. The dad may be the only one here that’s making responsible financial decisions, tough to know without understanding everybody’s financial position. But no, if you’re a fairly low wage earner, have little in retirement savings and also have your own student loans outstanding it isn’t usually a good idea to borrow for a kid’s college education. You can’t borrow to fund your retirement; take care of that first. It’s no gift to a kid to send them to college only to become a financial burden to them in retirement because you didn’t save enough to cover your own retirement expenses.
And you can’t always borrow from your 401k or 403b plan - the plans have to permit them. Many plans do, but they also charge an administration fee. They typically only offer loans for a 5 year term.
and @Sybylla - As far as vilification of the dad, I am sorry, but OP wrote
I don’t get why the dad, who quite clearly has the ability to pay, would be at all surprised that since the son’s family situation changed, with the household no longer having a sibling in school, and going from a family of 5 people with 2 in college and 1 in high school, to a family of 4 people, 1 in college, none in high school.
Yes, this should have been considered earlier, but especially by the dad. But this really isn’t Amherst’s problem - they have a great financial aid program for families that really need it. There are lots of families who are simply “unwilling” to contribute when they can afford to - and that is of course their option. It is great to have options. Probably because I am not wealthy myself, but I don’t have a lot of sympathy for people who own 3 houses and multiple vehicles and stock, yet they would refuse to assist their child’s education.
It is not the fault of the OP nor the student, here, if the dad also doesn’t share the similar priorities. I can understand that the dad might not be happy with having to pay more, but if he doesn’t (even with a loan), his kid will surely understand his father’s priorities.
Part of me is hoping that the dad understood all along how much this would cost, and is just trying to stick it to the OP so she takes a loan, but he will cover what is left.
Now that you are in this situation you need to determine what it will cost to finish at one of the state universities mapping out exactly what credits will transfer and course scheduling to come up with a $ figure. Only once that is done can you make a financial decision of what to do next. It may be that Amherst is the cheapest option or about the same. Your story serves to remind others to plug in any potential family scenarios for financial aid to make an informed decision. The problem is aid is not static making it very difficult to plan for four years. Its like a variable rate morgage but far worse as the payments can double or more in less than a year.
“the dad, who quite clearly has the ability to pay”
Nothing the OP has described - including that the dad owns multiple homes and cars - is clear evidence of an ability to pay. Ever seen that commercial that shows people next to their shiny things and asks them how they can afford all that followed by their reply “I’m in debt up to my eyeballs!”
Without knowing a person’s entire financial picture - assets, debt, retirement savings, potential for future earnings, length of time until retirement, health issues, other responsibilities (and parents who haven’t saved for retirement could be one of those) and more - none of us have any idea if dad is able or wise to pay.
This is a message board focused on college, so it’s a self-selected population that will lean towards certain views. Only a few people are stepping back to look at the financial realities and that doesn’t mean they don’t value college or that they are awful, mean people. The reality is that not every family or person has the ability to pay $40k+ or even $20k+ for a year of one of their three children’s college.
If dad is getting older, is divorced, just had a brush with unemployment and apparently doesn’t have all that great relations with kids, would it be wise to sign up for loans or cash 401k? If it was kid having to leave college all together and let go of education then it would make sense to find money somehow but if its between moving from an overpriced school to perfectly fine school next doors, he may not see it as a debt worthy decision. Every year lots and lots of students get accepted into fancy colleges but denied for financial aid, they have to go to affordable schools. Every year lots and lots of students transfer for financial and other reasons and survive. I think dad shouldn’t have a right to decide if he wants to pay for a minor child’s needs but he has a right to decide how much he wants to spend on a 21 year old’s expensive choice.
@3puppies The OP has said none of them -her, son, dad, knew the price would go up so much. Who knows whether the dad is truly wealthy. The EFC has risen to $46,000, still well below the full cost of Amherst. I would think a truly wealthy situation would involve having an EFC higher than that. Hope this works out. The son probably does need to take on the majority of increased cost if the father can’t or won’t help further . Hope dad does offer to help! Loans are not great but luckily the son has not had to take out any yet. A consultant making good money could prioritize knocking them out as quickly as possible.
I don't get why the dad, who quite clearly has the ability to pay<<<<<<<<
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This sounds like the assessment of a simplistic teenager. OP has stated dad pays for college too in the current scenario (and this is only 1 of the 3 kids ), the list of assets; " dad owns multiple homes and cars" is incompatible with ANY FA award so let’s assume it isn’t quite as straightforward as that because Amherst HAS provided FA.
MY DH or I would no more agree to send our favorite kid (TIC) to a full pay private because the other kids are free, than an ex might. Full pay families make hard choices ALL the time.
Best case scenario: Dad agrees to pony-up $$$ no strings (not likely)
Worst case scenario: S/mom need to scramble to figure out how to cover balance, From what I understand, S has ZERO loans to date. Let him take Max Stafford Year 3 + 4. Sounds like he’ll have lucrative job at graduation - so if mom takes loans, he can sign something he will pay.
IF there’s anyway expenses can be minimized - i.e. graduating in 3 semesters vs. 4 (even if i t means sacrificing double major) S should do it. Long run, no one will care Math + Econ minor or Mat + Econ Double… Or have S take a semester off and save some $$$., then finish. I do think the goal of graduating from Amherst is worth is, whatever it takes.
One idea that has not been mentioned. Student has an internship lined up for Summer 2019. Some … and I don’t know who, have just heard this mentioned, of the big firms that have interns and pay them well … will do semester internships. It might be worth investigating if this summer employer would offer a fall internship instead. Or even an academic year internship. It would give this student a break from trying to figure out how to pay for Amherst. Or … the firm itself might have some financing options. I am just throwing out blue sky here … thinking a little outside the box.
@Sybylla H and I also set limits about what we could or would pay. That left out the two expensive top private schools that the oldest did express some interest in because of lack of merit or athletic money . He liked our state school just fine and we saw no reason to spend more, especially with a younger child in the picture. We let him know up front -feel free to apply but know you will need to take out more loans if you want to go to an expensive private. And we are not wealthy, full pay at state schools but would have been less than full pay at these privates. Right before the changes in financial aid for less than wealthy families.
I feel like a broken record, but this seems different to me- somehow this young man ended up at Amherst, the mom says they were not aware the price could more than double, the son has made friends, is doing very well academically, is not entitled, has made employment opportunity inroads, AND is upset and wants to stay at Amherst. So, yes , maybe it would have been best for him to start at a cheaper school, and may have still done very well. But, he is two years in now, and I really hope he is able to stay. I am rooting for him.
@sevmom It isn’t a question I’ve even been able to ask as I haven’t heard back from non-custodial parent on what his intentions are. I believe Monday I will need to move forward with all courses of action, not assuming anything on his part at this time. I don’t think I can afford to be passive. August 10th is the deadline for fall semester. I have until then to secure the funding, make payment arrangements, or take out loans.
@OHMomof2 I did the research and as my credit is good, I won’t be denied the parent plus loan. I had hoped maybe I would be based on earning potential, but it appears to be credit based.
@2inanddone Thanks for the tips and suggestions. I had determined earlier today that taking a loan against 403b was out since I’d changed employers. I do like the sounds of what you suggested though in regards to loans where I can co-sign and student can assume loans post grad etc. I will need to look into this option as well. Thank you!
@milee30 I have the impression that Amherst has a pretty clear picture of dad’s capacity to pay. That’s exactly why I’m in the situation that I’m in with my student. Ability and willingness are two different things. If dad wanted to help his student pay for college he would. Amherst’s financial aid department has the clearest picture of all which is why our price tag is now $46,000 a year.
I’ve tried to use this forum for suggestions and advice, which I have greatly valued and appreciated along the way. For that I am very grateful.
@cnp55 I like the way you think! Said student did have an offer for a semester internship in Boston but turned it down long before all of this played out. Student was also concerned about not graduating in May with his class for fear of missing out on employment offers that often follow summer internships between Junior and Senior year. Hind sight, maybe it would have been a good idea, but for what it paid, I think he would have likely broken even paying for housing and food. It also wasn’t his preferred industry so he decided to pass.
Internship opportunities for next summer look to pay enough he’d be able to contribute significantly to his last year. Still would need loans, but he’d be able to contribute a good portion.
I’m still hoping he may be able to have enough credits to graduate a semester early. That’s probably the best option if there’s any way to swing it.
@katliamom I don’t think it’s responsible to mess with the 401k, but I think taking out a high interest loan feels riskier. The 401k/403b would represent less risk in my mind. I hope I don’t have to do either.