I’ve set up a 529 College Savings Account, I’ve figured out how much going back to school will cost, and now I just need to figure out how to pay for it.
I have two different options:
Option 1: Take out student loans to cover the full cost of going back, repay them when I get done.
Option 2: Save money in my 529, using it to pay for tuition and books as I go, and taking out student loans to cover the difference.
I originally thought that I could use my 529 savings account to pay off my student loans, but I learned that student loans are not a “qualified higher education expense.”
That being the case, Option 2 seems like my better option.
Exploring Option 2: How Much Can I Save?
Over the last few weeks, I’ve been going over our budget and considering how much we might be able to save each month toward the cost of me going back to school.
Right now, we’re paying an extra $200 a month towards the balance of our last credit card. That should be paid off in January. By mid-March, by snowballing the debt repayment money ($200) with the credit card monthly payment ($40) and the loan payment ($110), we’ll be able to pay off my car’s loan by mid-March.
After mid-March, we’ll be able to save an extra $350 toward my going back to school. Once I actually start back to school in late August 2012, my student loans will be put in deferment. If I’m only paying interest on them, we’ll be able to save an extra $100 at least, putting the monthly savings amount up to $450.
So, in 2012, my savings will look like this:
| Savings | |
|---|---|
| Starting Balance | $1,000 |
| January | $0 |
| February | $0 |
| March | $350 |
| April | $350 |
| May | $350 |
| June | $350 |
| July | $350 |
| August | $350 |
| September | $450 |
| October | $450 |
| November | $450 |
| December | $450 |
| Total Saved | $4,900 |
I’ve looked into what paying tuition at CU-Denver would look like if I used their payment plan. The way they have it set up, instead of paying the whole $4,956.83 upfront, you can split it into three payments of 40%, 30%, and 30%. That’s in August, in October, and in December.
If I add the cost of tuition spending for going back to school in Fall 2012, this is the resulting get this chart:
| Savings | Spending | Running Balance | |||
|---|---|---|---|---|---|
| Starting Balance | $1,000 | $0 | $1,000 | ||
| January | $0 | $0 | $1,000 | ||
| February | $0 | $0 | $1,000 | ||
| March | $350 | $0 | $1,350 | ||
| April | $350 | $0 | $1,700 | ||
| May | $350 | $0 | $2,050 | ||
| June | $350 | $0 | $2,400 | ||
| July | $350 | $0 | $2,750 | ||
| August | $350 | $1,982.73 | $1,117.27 | ||
| September | $450 | $0 | $1,567.27 | ||
| October | $450 | $1,487.05 | $530.22 | ||
| November | $450 | $0 | $980.22 | ||
| December | $450 | $1,487.05 | -$56.83 | ||
| Total Saved | $4,900 | Total Spent | $4,956.83 | Remainder | -$56.83 |
Before even factoring in the cost of books (I’m going to assume $1,200 for the year, so $600 per semester), my savings are completely wiped out by the end of the first semester.
But, if I take out a loan for $3,000 at the start of the semester, and use my 529 to pay for books and then the rest of tuition, the chart looks like this:
| Savings | Spending | Running Balance | |||
|---|---|---|---|---|---|
| Starting Balance | $1,000 | $0 | $1,000 | ||
| January | $0 | $0 | $1,000 | ||
| February | $0 | $0 | $1,000 | ||
| March | $350 | $0 | $1,350 | ||
| April | $350 | $0 | $1,700 | ||
| May | $350 | $0 | $2,050 | ||
| June | $350 | $0 | $2,400 | ||
| July | $350 | $0 | $2,750 | ||
| August | $350 | Loan: $3,000 | $2,556.83 | $543.17 | |
| September | $450 | $0 | $993.17 | ||
| October | $450 | $0 | $1,433.17 | ||
| November | $450 | $0 | $1,893.17 | ||
| December | $450 | $0 | $2,343.17 | ||
| Total Saved | $4,900 | Total Spent | $2,556.83 | Remainder | $2,343.17 |
Taking out the student loan and still having around $2,300 left at the end of the first semester seems like a pretty good deal.
If I continue the chart over the next few years, through May 2015 (when I should graduate), each year looks roughly like this:
| Savings | Spending | Running Balance | |||
|---|---|---|---|---|---|
| Starting Balance | $2,750 | $0 | $2,750 | ||
| Fall 2012 | $2,150 | Loan: $3,000 | $2,556.83 | $2,343.17 | |
| Spring 2013 | $2,250 | Loan: $3,000 | $2,556.83 | $2,036.34 | |
| Summer 2013 | $900 | Loan: $1,000 | $1,017.27 | $1,919.07 | |
| Fall 2013 | $2,250 | Loan: $3,500 | $2,056.83 | $2,112.24 | |
| Spring 2014 | $2,850* | Loan: $3,500 | $2,056.83 | $2,905.41 | |
| Summer 2014 | $1,200 | Loan: $1,000 | $1,017.27 | $3,088.14 | |
| Fall 2014 | $3,000 | Loan: $3,000 | $2,556.83 | $3,531.31 | |
| Spring 2015 | $600 | Loan: $3,000 | $2,556.83 | $1,574.48 | |
| Total Borrowed | $21,000.00 | ||||
| Total Saved | $17,950 |
Total Spent | $16,991.52 | Remainder | $1,574.48 |
*In January 2014, we pay off our next biggest loan, enabling me to add $150 to my monthly college savings.
So now I have a plan. It’s even a pretty good plan, assuming nothing goes awry. I’ve built a bit of wiggle room into the whole equation, just in case, and we’ve got an emergency fund plus some other savings, so hopefully “awry” won’t throw my graduate degree dreams off track too much.
Worse comes to worst, I can always take out more student loans. I don’t want to add more to our student debt burden than I have to, but at that point finishing my degree with the potential for greater income when I do will be more important than avoiding student loans.
As possible as it is for things to go awry, it is also possible for them to go well. My husband or I could get a raise at work, we could get a windfall of cash along the way, or something even more unexpected and awesome. Who knows?
All I know is, plan for the worst, hope for the best.
{ 2 comments… read them below or add one }
This looks like a pretty good plan. I would leave taking out loans as a last resort though. Have you looked at what you repayments of the loan will be, how many years it will take to pay back and all that? Lots of different factors can affect repaying the loan, like not finding a job in your field when you expected to repay back the money easily. That’s what a lot of people are facing right now with the Occupy Wall Street protests. Just something to think about.
Hey Carrie,
Yeah, I don’t relish the idea of taking out more student loans, as the hypothetical situation you described is exactly what happened to me when I graduated from my undergraduate program.
Unfortunately for my current situation, not taking out student loans basically means not going back to school, taking only one class at a time, which doesn’t work for me for other reasons.
Fortunately, I’ve done the math and we’ll be able to pay back the loans I described above on our current salaries. It’s not ideal, and in a perfect world I’d go back to school with out any new loans, but that’s just not realistic right now.
Good advice, though. Thank you for commenting.
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