Use savings, get loans, or do both?

beolein
Tue, 10 Apr 2012 10:09:35 +0000

The number one rule for parents is to save for retirement rather than college. In retirement, you can’t go to a cheaper college, get a loan, a grant, a scholarship, or your parents’ money, or have a job to pay living expenses.

But if you have savings, getting a loan for college in order to keep the savings for retirement will cost you money you could have had for retirement.

If you think your savings will earn an average of 6.8%, and student loans are 6.8%, how do you determine the price difference?

Do you pay for college out of savings, losing the principal on investments that would make perhaps 6.8% per year average until retirement?

Do you pay for college with loans, which have an interest rate of 6.8%, but which would let you keep your savings and its earnings until graduation when loan payments must be started?

Do you mix both depending on how much money you have in retirement accounts and how much you still need to save for retirement?

Do you have your child take out a subsidized Stafford loan, then gift them the money when they graduate so they pay off the loan immediately, preventing interest payments, but letting you keep your savings and its earnings until then?

Do you do something else?