Higher Education is Rarely Free. Consider This as You Gather College Money

What? You need college money already?

Our Kids grow up so quickly. It seems like yesterday you bought a tri-cycle, and now you need tuition money.

Many people get caught short when trying to gather money for college tuition.

Before you take out student loans or raid your 401K, read these frequent questions about college money.

Question: My daughter is getting ready to go off to college and I am nervous because I have not saved enough money and, in fact, have a fair amount of debt. Should I withdraw money from my 401K to pay down my debt and help pay for college?

Generally, I would not recommend pulling money out of your 401K since that money will be needed for future retirement and will incur a 10% penalty.

I would encourage you to live on a budget that would free up enough money to pay down your debt without pulling money out of your 401K.

With regard to paying for college expenses, in this case, it may be better to use a portion of your 401K than to take on new debt since 401K withdrawals used specifically for higher education can be made without incurring the penalty. (You will still have to pay the taxes.)

Then try to make up for the amount withdrawn by contributing additional amounts to your 401K to “pay back” the withdrawal as soon as possible.

I would also caution against encouraging your daughter to personally take on significant debt for college, since more and more college graduates are finding their career choices increasing limited due to the pressures to pay off college loans.

More and more families are finding lower cost ways to pay for college and avoid debt.

Examples include, attending a community college for two years then transferring to a four year school, and spreading four years of college over five or six years to allow periods of work in between to earn money for tuition.

College money loans are becoming an increasing large reason why college graduates are struggling financially for years and even decades after entering the “real world.”

Question:

Dave, I am 23 years old and I recently made a decision to go back to Graduate school to become a teacher. Other than my car payment, I do not have any other debt. I like not owing much but I feel completely clueless how to pay off the $19,000 of debt I will be accumulating in the next 21 months. I have taken the Good Sense Seminar in the past. Do you have any suggestions? … I have less than two weeks before I sign my life away.

I wish there was an easy answer to your situation ... but any time you spend money you don't have it will be painful.

You probably won't like my answer ... but this is what I would tell my own son or daughter if they came to me with this question.

I would like to suggest considering other option besides going into $19,000 of debt in the next 21 months.

On a teacher's salary that is going to be extremely difficult for you to pay back.

Consider working part time and going to school part time. Commit to live as cheaply as possible ... scrimp and save and go to graduate school as time permits while you are still working.

By doing that and living wisely on a budget, you could avoid that significant debt.

Sure, it will take you longer ... but what difference does it really make it if takes you four years versus two.

I would much rather be a 27 year old teacher will little or no debt than a 25 year old teacher with $19,000 of debt.

At Financial Freedom Trail , we are dedicated to you having not only college money saved for when you need it, but we also want to show you ways to increase you income, save more and manage your money wisely.

Please visit our Home page to see ways we can help you with personal finance to achieve financial freedom.

If you have suggestions for ways to raise college money, please contact us, and we will include your ideas.

Financial FAQ Page

Financial Freedom Trail Home

College Money - All Rights Reserved