Short term loan or Long Term Savings?

[Scanner]

If you had $15,000 and you needed a new, used minivan but you also needed to begin more aggressively saving for 3 kids college. . .would you

1. Put down $3000 and take out an auto loan to finance the rest and then invest $12,000 in 529's.

or

2. Pay cash for the minivan and just begin accelerating savings towards the goal of college savings.

[kork13]

I'll tell you now, first thing everyone will say is to make sure this $15k minivan is really what you need, and that you can't do as well for less. (shortly following will be questions to your retirement preparations and other debts. ...sorry, am i ruining everybody's fun?)

Now that that's out of everyone's collective system (hopefully? ), I would personally say to pay cash for the van outright. Doing that gives you a few positive outcomes:

1. you don't have to worry about having debt over your head
2. you don't have to pay interest on your van, effectively making it even more expensive
3. you're able to put all monies which would have otherwise gone to paying off the car debt toward college savings. Additionally, it encourages DCA for the 529 investments, reducing your 529 accounts' risk of buying "at the wrong time".

To do the other option might look good, but keep in mind that even if you got a low interest rate (say 5% for ease), you would have to rely on your 529 investments doing at least better than that plus the additional cut taxes will eventually take (sorry, idk how to quantify that). In the end, you're relying on an unstable market to hope that you do better in the end.

Personally, I would prefer to be without the debt and move forward toward college savings. Better to be free of debt, because kiddies can always seek financial aid/scholarships/etc.

[disneysteve]

I'd buy the van outright. College savings is a gift, a bonus, for your kids. It isn't a need or requirement. Having a safe, reliable vehicle large enough to transport your family is a need.

And yes, as kork13 suggested, I'd want to know that you have your financial ducks in a row otherwise as far as debt, retirement savings, emergency fund, etc.

[Like2Plan]

Scanner,
It depends on how you feel about college savings and your income level. There are some folks who will pay for their child's education no matter what and their income level is too high for the child to qualify for much financial aid. If you are in this category, then taking out a college loan in the future because there is no money set aside may be more expensive than financing you can get on the car now.

[kork13]

Scanner,
taking out a college loan in the future ... may be more expensive than financing you can get on the car now.

aren't college loans generally some of the lowest interest rates you'll get on money, by at least 2-3%? let alone against a car loan....

[jIM_Ohio]

If you had $15,000 and you needed a new, used minivan but you also needed to begin more aggressively saving for 3 kids college. . .would you

1. Put down $3000 and take out an auto loan to finance the rest and then invest $12,000 in 529's.

or

2. Pay cash for the minivan and just begin accelerating savings towards the goal of college savings.

Need more info:

You have $15k cash available
When is child 1 going to college? child 2? 3?

What is the monthly budget for either minivan OR 529's?

[Like2Plan]

aren't college loans generally some of the lowest interest rates you'll get on money, by at least 2-3%? let alone against a car loan....

kork13,
Actually, the answer to that question depends on a lot of variables. If the parents make a lot of money, then the child generally doesn't qualify for the lower interest rate student loans. Parents can get PLUS Loans (Parent Loans),
but the interest rates on these loans are higher. (A variable rate loan fixed July 1st every year currently at 5.01%, plus parents pay a fee of up to 4% of the loan). And the loan may not be enough to cover all the expenses.

Right now, there are incentives for car purchases as low as zero percent. Or, how about good 'ole PENFED which has 4.5% interest rate car loans (new or used).

[Scanner]

I'll tell you now, first thing everyone will say is to make sure this $15k minivan is really what you need, and that you can't do as well for less. (shortly following will be questions to your retirement preparations and other debts. ...sorry, am i ruining everybody's fun?)

All things considered and trying to be balanced about it, we think a minivan for 15K with about 36,000 miles on us will suit us the best. My wife puts about 8000 miles/year on her vehicle and we figure this will be a keeper. A 2005 minivan will have also surpassed the maximum depreciation.

College savings is a gift, a bonus, for your kids. It isn't a need or requirement. Having a safe, reliable vehicle large enough to transport your family is a need.

Disneysteve,

The only thing with that is I know my wife will feel like a failure (and dutifully pass those feeling onto me) if we get to college and we have to borrow or are unprepared.

You have $15k cash available

Will have it. . .about October.

When is child 1 going to college? child 2? 3?

Child 1: 2015 (!)
Child 2: 2020
Child 3: 2026 (he's 2 months old)

What is the monthly budget for either minivan OR 529's?

I don't know. . .I am not a religious budgeter but I would say we could spare $400/month for college funds and fully fund Roths and 403(b)'s.

I am actually leaning towards Option 2, even though I kinda knew the savingadvicees would advise 1. . .but sometimes I do the unexpected.

[disneysteve]

I know my wife will feel like a failure (and dutifully pass those feeling onto me) if we get to college and we have to borrow or are unprepared.


Child 1: 2015 (!)
Child 2: 2020
Child 3: 2026 (he's 2 months old)


I would say we could spare $400/month for college funds and fully fund Roths and 403(b)'s.

What college savings, if any, do have in place already? Child #1 has 7 years left. Even if you put away that entire $400/month, that will only grow to about $40,000 in 7 years. I used a 5% return since with a relatively short timeline, you can't get too aggressive. 40K isn't going to buy a 4-year college education. Even the state schools are going to run you more than that. And you've got 2 other kids to save for.

If you (or your wife) are looking to foot 100% of the bill, it doesn't sound like the money is there.

Borrowing for college isn't such a terrible thing. Many parents let their kids take whatever loans they qualify for and then help them with the payments. That helps the kid establish their credit history and gives them a financial stake in their education if they are responsible for at least part of the payments. My parents did this with me. My med school loans accrued interest while I was in school. My parents made the interest payments so that amount wouldn't be tacked on to the principal when I graduated. Once repayment started, I was on my own, but with a smaller balance than if they hadn't made those payments.

I think you and your wife need to discuss the realistic cost of 3 college educations vs. the realistic amount you guys can contribute. Heck, we only have 1 child and I don't think we'll be able to pay her way 100%, especially depending on the school she chooses.

[jIM_Ohio]

Seems to me we had these college funding discussions before.

I would pay cash for the car so you can dedicate resources to 3 different funding problems (issues).

If you paid cash for the car, what would the college funds be. $400/month ($4800/year) spread between Roths and college funds is not much money. Then I read a second time and you have $400/month for just the college funds.

Question- I asked this when you posted before... could you outline your mortgage payment/payoff status (relative to age first one starts college)?

I think my original advice was use the $400 to pay off the mortgage, then set aside mortgage payment+$400/month for child 1 for 2 years, do same for child 2, then do similar for child 3.

How much would you like to have set aside for college as a percentage of tuition? Fully fund (100%), partially fund or fixed amount (Maybe $40k per kid)?

[Scanner]

Mortgage payoff: circa $120,000
Home value: circa $340,00
Mortgage payment: $1026/month
Taxes: $8100/year with NJ Property tax rebate circa $1600

Child 1: 529: $6100 (declining in value the last 6 months)
$2200 Education IRA

Child 2 529: $6100
$1500 Education IRA

Child 3: $500 sitting in escrow while awaiting SSI card.

I know my wife will feel like a failure if they don't get a full ride (like she did - I paid my room, board, books , and spending money - mom/dad paid tuition + auto ins.).

I am just aiming for 2/3rd ride.

Anyway you slice it, we are behind.

[jIM_Ohio]

Scanner- maybe behind, but you have enough time to fix the issue.

Here is my thought- With $120k left on mortgage AND $400 extra per month, could you pay mortgage in time for child 1 to start freshmen year (7 years).

If above is true, would $1600/month PLUS the $6100 now pay for the 2/3-100% of child 1 tuition? That is 20k per year. 2015-2016-2017-2018 for child 1.

2019 is a catch up year- no tuition, and $20k cash in budget. Spend it wisely.

Child 2 would have $1600/month PLUS their $6100 compounded to pay same 4 years of $20k tuition. 2020-2021-2022-2023 would be 4 years of paying 20k.

2024 and 2025 would again give you 20k cash each year.

2026-2027-2028-2029 would be 20k allocated to child 3 tuition. I would allocate some of the 60k to this fund as well because tuition will be higher, and the $6100 you had set aside for kids 1 and 2 is not set aside for child 3.

The good news is this plan puts YOU first (mortgage is paid off). Regardless of retirement accounts and similar, you would have a house paid for well in advance of any other financial goal, including retirement, kids education and similar.

If something bad were to happen (lose job, had to retire early because of downsize or diasability), one of the requirements for the retirement (paid off house) is taken care of.

You could improve the situation by suggesting each kid go to community college or a state school for two years to allow the 20k being set aside to grow somewhat.

[disneysteve]

I know my wife will feel like a failure if they don't get a full ride (like she did

Please take this in the tone it is intended (always hard to convey in print) but I think your wife may need a reality check. College costs have skyrocketed way, way, way faster than inflation or personal income in this country. Just because she got a full ride 20 years ago (approximately - don't know her age) doesn't mean it is feasible for you guys to give your 3 kids a full ride 7-18 years from now. My first year of college in 1982-83 was $7,500. Today, one year at the same school would be over $40,000. When prices rise at that rate, the ability of families to foot the full bill falls with each passing year. So though I applaud her desire, she needs to realize that the rules of the game have changed significantly since she was in college herself.

[Scanner]

DisneySteve,

I know, I know. . .she just feels like for 2 professionals we should be further ahead and not struggling with these issues. I have tried to lecture her (ever try lecturing a female you are married to?) on what you have said, but she just doesn't get it.

JimOhio may have offered the best compromise here. . .will an extra $400/month really get our home paid off in 6 years though?

Should we lump sum $12,000 towards our mortgage or just pay for the car in cash and then put $400/month towards our mortgage avoiding the auto loan?

[amarowsky]

$40,000.00 for one year at school is kinda a high number Steve. I'm currently in community college that is local, (for my associates before I go to a graduate college for my bachelor) and at FULL TIME (12-14 credits) I would pay at most with new books maybe $1200-1800. And my brother who is going to school for Genetics at Wayne State of Detroit, MI is paying I believe roughly $200-$250 a credit hour. So if you ask me $40,000.00 depending on the school is More than enough money, also considering that the child will be in college for x years (depending on degree required or desired) and I'm assuming you'll still be making that $4800.00 monthly attribution.

-As a 21 year old who formerly paid for my own school, I think you should make the kid work for his own payment. Or an even better solution is offer your child like a 2/1 ratio for dollars earned or something similar. Match or double what they're willing to work for (when of age) and add that to someone's college plan. Or maybe the child will be fortunate as I am now, where my work offer's $5200.00 yearly for school, which if spread out properly part time, I'm looking at a Totally free college degree for a backup job should I ever choose to leave the rail road.

I could just be talking out my ass, but I am always against people feeling obligated and responsible for their entire child's school costs. It's much more rewarding to know that you can draw your own water when your able to. Not to say that some help is more than welcome when needed, or already assured that you can stand on your own.