Use savings, get loans, or do both?

cptofthehouse
Tue, 10 Apr 2012 15:27:52 +0000

We do have some money that is specifically targeted for college. No where nearly enough, but some. We also can pay a certain amount out of current income, mainly because we have been paying for private schools for our kids for a long time. So that payment will just go towards college costs. Any extra money from the prior year, we throw into savings and that goes towards college costs. We also decided that we could borrow $20-30K total per kid for college. We can do this and still put away what we have planned for our retirement. Clearly we could put more away towards retirement if we didn’t pay for college and private school, and if we did not put away what we are, we could pay for any college our kids choose, so it all comes down to what we decided we would need for retirement purposes It would foolish not to get the full IRS deduction and employee match ,so that is the base of what our retirement plan has. DH then structured a model of what he thinks we will need to be comfortable, have a bit of a cushion and yet take into account that our needs will be less since hopefully the kids will be self sufficient. That model is really the crux of what determines how much you have to save. We are on the low side of what we want. Doing this we can afford to pay $30-35K a year for our kids college. Actually, the way things have gone, it’s really more like $25-30K but we made the deliberate decision to keep it at the original amounts. The temptation to up it has been high, I can tell you, and maybe I will. But that is how it now stands.

In doing this we borrow about $5-6K per kid .per year in college which will be paid over 10 years after our kids graduate.We don’t borrow the money until the end of the year so that the interest does not start until the last minute. We have the child take out the loan in the form of the Stafford because the interest rate is slightly lower than the parent plus loan. If the student needs to take out the loan to pay his portion of the cost, then, we will take out the PLUS instead. This year, one of mine did need the STafford money for himself as he had to quit his job, and some estimated costs went over, and his summer job is going to be curtailed and he has an opportunity he wants to pursue this summer. To be on schedule, he needs $3500. So we borrowed $5K from PLUS. The total loan burden for this year will be the full Stafford amounts for both students $13K + $5K from PLUS. Of that, my one son will get $3500 of the proceeds, and DH will track the payments for that amount for him, which he will pay to us. We will pay all of the student loans, regardless whose name they are in, and any amounts the kids needed to pay their share, they will just pay us separately. Keeps it organized though not simple. s

It was a tough year for us, and we needed the extra due to having 2 in college this year and we are going to be paying a bundle for all of us to go to the older one’s graduation next month. I had kind of hoped to swing it out of discretionary funds, but it didn’t work that way, so the extra we took out from PLUS will help us out. I just made the final payment for this year’s college costs, so we are good that way. The big deal now is now much extra money if any, will we have for this summer for the youngest one (high schooler) to do some things. Too young to get a “real” job yet, just 14, wants to go to a sports camp and do a few other things.

We do pay a premium to manage our costs, in terms of interest, but I feel it is worth it becomes it keeps things straight so we can see where we incurred which cost. We will be finishing up payment of $40K borrowed by and for S1 from 2002-2006 in 2017 which is in 5years. At that time we’ll also have started payment of S3’s loans of $30K for 2008-12 which will commence in 2013. We’ll have four years of two school payments, but I am optimistic that we won’t need to borrow any more money in that time. When our youngest goes to college, I am hopeful that we will be in position to pay whatever it costs for him to go to school, something we could not do with the middle three. However, all three say they are going to their first choice schools and are happy. We are an upper income family with a huge house/tax bill, and a house we can’t unload right now.

No subsidies on the loans. If both of the kids currently in college were paying full sticker price for a top priced private, they would be eligible for loan subsidy, workstudy, maybe a bit of financial aid, but one is at an OOS public and the other has a merit scholarship which brings their cost within our EFC for each of them.