Should I pay for my tuition with my savings or take out loans?

[deleted1097916]

I have about 40K saved.
My tuition is around 35K/yr.

I heard you can't really take out loans for personal reasons other than tuition/living.
Should keep the money for emergency and take out loans for the first year?
I am going to take out loans anyway for the remaining years.

---

Members don't see this ad.

 

[Dral]

I think it may depend on your school. My school provided me with everything I needed. I got a certain amount a year, but I had to budget it of course. If I wanted to use some of the money to go on a trip or something, I could. If I wanted to buy a new play station, I could.

I had an excellent financial aid office at my school. Hopefully your school has the same. I would start with them and see what they say in terms of how much you can take out. If your plan is just to keep that 40k in savings the whole time instead of investing it, it makes sense to use it to not have to pay interest rates on that much during school (since your loans will charge more in interest rates than any gains you'd make in a savings account).

 

[BritainKittenMittens]

I personally would not leave your savings as cash and take out loans. You are paying interest on the loans (is it 5-6%?) and so you are losing that amount while keeping money in the bank. If you are worried about having cash for a rainy day, you should factor in what crises would cause you to have to dip into your savings, and if they are unlikely I wouldn't worry about it. The loans money should cover your expenses, and you should ask if your school provides emergency loans in dire situations to help you alleviate your concerns.

If you are to invest your savings, that's a totally different story and depends on whether you think the returns on investment is better than the interest you're paying from your loans. I am not a financial advisor so I can't comment on investments.

 

[deleted555445]

I am going to keep enough savings to cover 3 months living expenses, and use the rest towards tuition/COL. I want to have an emergency fund just in case while also taking out less in loans. I also have money in a roth IRA that I'm not touching that could be taken out in a real emergency. So, if I were you, I wouldn't spend all of that on tuition, but maybe just like 75%. But I am not licensed to give financial advice, I'm just risk averse.

 

[Dr Meow]

I have about 40K saved.
My tuition is around 35K/yr.

I heard you can't really take out loans for personal reasons other than tuition/living.
Should keep the money for emergency and take out loans for the first year?
I am going to take out loans anyway for the remaining years.

Definitely keep your own money. It's your safety net.
Furthermore, with your own money, you're able to invest it when it's a good time.
You cannot invest loan money. And potentially if your investment works out, you can use it to pay off your loans.

 

[BritainKittenMittens]

Definitely keep your own money. It's your safety net.
Furthermore, with your own money, you're able to invest it when it's a good time.
You cannot invest loan money. And potentially if your investment works out, you can use it to pay off your loans.

This sounds like timing the market, which is not what I'd recommend to anyone much less someone who is not investment savvy.

You have to compare your ROI against the whatever % of student loans, because effectively if you're paying your tuition and forgoing the student loans, it's like getting a <% interest rate of student loan> ROI.

What I'd suggest is to take out the loan now (because we don't know when the student loan deferral will begin again, which means you're effectively borrowing for free), and then reconsider because you can always pay down your loan principle later.

But as a general principle, it is not always better to keep cash, especially if you don't intend to invest it. If you do invest, it's all about the relative returns. I don't want to put any predictions out there because even the best economists are wrong, but the fed is increasing interest rates to temper inflation, which means you student loan rates go up and stock market YOY returns go down, historically. I think historically stock market returns are around 10%. But if student loan rates go up and stock market returns go down, there reaches a point where it makes sense to pay down the debt.