As the economy stays in the toilet, one big question for an American Family is: How are we going to pay for College? Well, assuming that there is no pre-paid college plan or a 529 Plan, this decision is going to be whether you take money out of savings or finance the education. This is a very difficult decision.
I will be the first to tell you that I financed my education, and it was an eye opening experience. I really didn’t have a choice. So, the decision was pretty easy for me. If I wanted the education, I had to borrow the money and pay it back in the future. I will tell you very honestly that I had no idea how much I would have to borrow, nor did I know how long it would take to pay it back.Now, I know, and I am in a position to provide a little insight into the issue. First, if you are facing this issue, you must be completely honest with yourself and ask: Am I a dedicated saver? Or, am I more of a risk taker? Why?
If you are a dedicated saver, you understand the idea of delayed gratification, and you know that the money you sock away now will have an opportunity to grow with compound interest over a longer period of time (This analysis does not take your investments into consideration). We are talking theory here. The dedicated saver is willing to put in the time and wait for this reward. The saver will also understand and figure out what the cost-benefits are of taking the money for college out of savings and then not having debt to repay later.
The risk taker will understand the risks and opportunities available. If they have the money in savings, the risk taker may decide to leave that money in the investments and borrow for the future. The risk taker understands that the investments will still be there when the education is completed, but that the investments may be overshadowed by the debt and the interest accumulated.
If there is no investments to fall back on, the risk taker will also understand that by financing the education, they will have to be more aggressive in their savings later on to make up for the amount of money and time that they lost on not having an investment portfolio, lost savings and future retirement.
For me, again the decision was easy, I didn’t have an investment portfolio to fall back on. So, when I came out of school, I had a mountain of debt that had to be paid back as quickly as possible. I wouldn’t want to wish this on anyone.
So, if this decision has to be made by you. Please do not take it lightly, there are many issues which you need to consider like: The amount you are borrowing. The rate of interest. What happens if you default? Job opportunities? Salary in the desired field? Family commitments? Living expenses? Making informed decisions now, could save you a bundle in the future. Learn from my mistakes.
This post was submitted by Carmen Dellutri, Esq.
Comments on this entry are closed.