Paying For Your Degree With
Private Loans or Your Own Funds

There are an whole lot of different ways to pay for an online degree, either by using your own money creatively or by borrowing from your local bank. Some of them can be very successful, while others can expose you to far too much debt risk. It’s not a good idea to borrow more than you really need, though that’s become less of a worry than it was three years ago because banks are less inclined to “over lend” than they were before the recession.

Generally, your ability to get a private loan depends on your credit-worthiness rather than on your need, which means that the students who most need a tuition loan often have the toughest time getting one. Where you may find it easier to get credit is through credit cards. But that’s an area where you can get into big financial trouble fast if you’re not extremely careful.

Your Credit Picture
The popularity of online education has created a lot of demand for student loans from adults attending online schools. Because many of these students most have an income, banks have worked to provide special loan programs for students taking weekend, evening, elearning, and continuing education programs of all types at the undergraduate and graduate level. The current tough economic client is making it harder to find student loans for those without good credit, but you should be able to borrow if your credit history is reasonably good.

There isn’t a single website (or at least we haven’t been able to find one) that will give you information on all the private student loans for college the banks are offering. But the keys to being a smart borrower include not going for a loan just because it offers a long “grace period” before you start paying back, or start paying back the interest. You need to get a clear picture of the payment requirements over the full life of the loan. Beware of graduated or variable loan programs where the payment schedule changes over time – these types of programs have proved very painful to lots of people with mortgages. In the bigger picture, your cost on the loan is obviously going to hinge on the interest rate, so you should do some comparison shopping among banks to get the lowest rate available.

Personal Savings If you’ve saved enough money to pay for a good deal of your schooling, congratulations! But be careful, it’s not always the best strategy to spend all your money to pay your current school costs. You may be able to borrow money at a low interest rate under an education program, and put your money into an investment that earns you a higher rate of interest. The caveat here is that low interest rates have made this tougher to do - particularly with fixed interest investments like bonds. Keep in mind that you should be looking at conservative investments if you undertake this strategy. Don’t borrow for school and put the money you have into a “hot stock” or something else that may lose value.

Credit Cards
Is it completely crazy to pay for your education with a credit card? It depends on your interest rate – which is absurdly high on most credit cards – and your ability to pay off at least a good deal of your credit card bill each month.

Some people pay for school on credit cards and then use the points they earn to pay for something else. Some cards actually allow you to earn cash back. The two main problems with this approach is that you won’t get any tax breaks and it’s very possible to rack up so much debt in a short amount of time that you have to actually drop out of school just to pay the card off.

Credit cards are best used as a way to cover shortfalls that come up during your schooling. Because they charge a far higher interest rate than almost any loan available, it’s smart to be very cautious with them. If you borrow just $2,500. at a 19.9% rate and make only the minimum required payment on your bill each month, it will take you nine years and over $5,400. to pay off your $2,500 charge!

529 Plans
So-called “529 plans,” are best known as a way for parents to put away money for a child’s education. But if you have some free income to put away, you can open a 529 plan for yourself. You need to select a particular state’s 529 plan – not necessarily the plan for your own state but the one that offers the best investments. Any gains that the investments in your 529 account make will be tax free, which is a key advantage over most brokerage accounts. You must, however, use the money to pay for school to enjoy the tax benefit. Look for a plan that charges less than .1% of your total assets in annual management fees. Otherwise the plan fees will eat up your tax benefit. (to research 529 plans, go to morningstar.com).