Paying For Your Degree With
Private Loans or Your Own Funds
There are an whole lot of different ways to pay for a distance
education, 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. Generally, your ability to
get a private loan depends on your credit-worthiness rather than on
your need. Stated in a more cynical way: the more you need money the
harder it will be to get from private lenders.
The popularity of online
education has created a lot of demand for student loans for online
schools adults. Because most have at least some solid
income, banks have made a big push to offer special loan programs for
students taking weekend, evening, distance learning, and continuing
education programs or all types at the undergraduate or graduate level.
The new credit crunch of 2007 is making it a little bit harder to find
student loans for college students without good credit, but you should
be able to borrow if your credit history is reasonably good.
There isn’t a website
on earth that can give you the rules
for all the private student loans for college the banks are offering.
The best
advice to avoid being pulled in too much by a loan just because it
offers a long “grace period” before you start
paying back, or start paying back the interest. Make sure that what
you're getting is an acceptably low interest student loan for college.
Your cost on the loan
is going to hinge on the interest rate, so you should do a good deal of
comparison shopping among banks to get the lowest rate available.
Beware of any type of graduated or variable loan where the payment
schedule changes over time – these types of programs have
proved very painful to lots of people with mortgages.
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. At the end of the day, you’ll wind
up better off because you’re money will earn you more money
before you pay back the education loan. Just keep in mind that you
should be looking at relatively conservative investments here.
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 state 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).
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