Save or Borrow for College?

Is a dollar saved the same as a dollar borrowed to pay for post-secondary education? Not even close!

firm’s college saving education site (www.collegesavingschillout.com) that explores the implications of borrowing $25,000 versus saving $25,000—an amount of money close to what the College Board says it takes to fund a single year of education at a "moderately expensive" in-state public college for the 2013–2014 academic year.

Compare borrowing $25,000 versus saving $25,000.  According to (www.collegesavingschillout.com) it takes about $70 a month in savings for 18 years to reach $25,000. “If you wait to borrow that money, it will cost about $300 a month for 10 or 12 years to repay the debt. “That’s a huge incentive to save the money in advance. In the end, you can pay several times more to finance education when using borrowed money,”  according to Stuart Ritter of T. Rowe Price.  Saving money in advance puts compound interest to work for the individual—whereas borrowing money works against the borrower.

The best way to save for post-high school education is with a 529 college saving plan and Utah’s 529 (www.uesp.org) is one of the best in the nation.

Ritter says it’s better to pay off the student loans “as you’re supposed to,” while building an emergency fund. After that, retirement savings should be a priority, Ritter says.  “Very often there is a match that you’re giving up if you prioritize debt above everything else and start paying that back faster than the terms of the loan at the expense of retirement plan contributions,” Ritter says. “If it takes you a decade to do pay off the student debt, that’s a decade of lost returns on top of what you paid back for the loans. If you can afford to put money into the retirement plan while still paying back student debt, that’s an extra 10 years of compounding you can earn.  Details at: http://www.planadviser.com/NewsArticle.aspx?id=10737423456&p=1