Lisa, a friend and League member, posed this excellent question. While I don’t in any way have all the answers, I can speak to my family’s experiences and my thoughts on it.
Q: Hey, we have both been thinking about pursuing additional schooling, and would be curious to hear your take on all the financial variables surrounding that. Paying for it with loans vs. depleting savings to pay for it; biting the bullet and going full-time to get it over with and get working (at a higher salary presumably) vs. doing it while working some or a lot; paying a lot for a fancy private school with a good reputation vs. just getting it done for cheap at a community college or tech school… I know there are too many variables for you to offer specific recommendations to others, but I would be super curious to hear how you have evaluated these questions for your family.
A: Well, you’re right that there are too many variables to give one answer that works for everyone. And even though my family is doing exactly this, we stumbled into our way of dealing with it. We’d already committed to my husband going to college for his bachelor’s when we had our financial reckoning and made our not-to-be-added-to debt spreadsheet. So, since I wasn’t sure how we’d pay for his college, when making our spreadsheet I added a line item of $40,000 of “estimated future debt,” and that stayed in our debt total. When he started going to school we still had higher-interest credit card debt and a family loan I was keen to pay off, so we did take out loans. I’d subtract the loan amount from the “estimated future debt” but add it to our spreadsheet, so the new loans didn’t add to our total. (That was purely psychological, of course, because they did add to our actual debt.)
We soon paid off our higher-interest credit cards and started working on the low-interest ones. At this point we could have stopped paying extra on those and paid for Neil’s tuition straight up instead, but although the interest rate was a bit higher on the student loans, the credit card debt just bugged me more, so I kept paying extra on that. (I figured the tax break on student loan interest at least somewhat offset that difference in interest rates, too.)
Once we paid off all our credit card debt, I started paying extra on the student loans. Since I wouldn’t always have all the money upfront to pay for tuition, we started taking a loan for about half the tuition and paying the rest. As our student loans got less and our incomes gradually increased over the years, I came to the point where it would only take me a couple months to save up a semester’s tuition, so we paid the last semester in full without taking any more loans, and we’ll pay the remaining semesters that way if we can. (Which is good because I’ve depleted my “estimated future debt” amount; it’s almost gone and he has over a year of school left. Turns out it costs more like $51,000!) When I’m not saving up for a new tuition payment, I put everything extra toward the student loans. I hope to have us all out of student loan debt around the same time Neil graduates, end of next year!
That’s our random, flailing story of paying for an adult’s higher education, but it’s not really that relevant to Lisa’s question. So what do you do if you’re more financially savvy than we were when my husband started school?
I guess I’ll tackle each of the either-ors in your question:
- Paying for it with loans vs. depleting savings to pay for it. My choice here would depend on what savings you’re depleting. If you have 3 to 6 months’ worth of living expenses saved, anything above and beyond that I’d definitely put toward paying for school. But especially with a kid in the picture, I wouldn’t take the emergency fund down to nothing; better to take out student loans and then pay them off faster than required if you can. Similarly, I wouldn’t raid retirement accounts, because every year of growth on those puppies is precious.
But yeah, if you have other cash savings, I’d use them to pay for tuition. Student loan interest rates are probably always (at least in our lifetimes) going to be higher than any savings interest rates.
- Biting the bullet and going full-time to get it over with and get working (at a higher salary presumably) vs. doing it while working some or a lot. This is more complicated, and I don’t even feel I can answer it. It’s no walk in the park to be working and going to school. It’s even harder (for both the student and their partner[s]) to be working, going to school and raising a small child. That being said, the only way we’ve been able to pay down debt so aggressively and eventually start to pay tuition upfront has been by having us all earning full-time wages. It’s stretched the college experience out by three or four years, in which time tuition has gone up (not drastically, but up), student fees have to be paid every semester of enrollment, and quality family time is dramatically curtailed (not as much as, say, couples who work different shifts, but more than if the college stuff were taken care of during the day).
What I would do in this circumstance is to rely on the good old spreadsheet. Map out the total cost of doing it both ways: Estimate the salary you can expect to start earning after college and start applying that in different years depending on whether you graduate on time or take more years, and estimate how much more you’d end up paying due to tuition increase and repeat student fees over the longer period. Mock up a budget to see what it would be like to survive without your current salary.
- Paying a lot for a fancy private school with a good reputation vs. just getting it done for cheap at a community college or tech school. OK, when I was a kid, the cost of college was the last thing on my mind. Therefore, I accidentally fell in love with the most expensive college in the U.S. Oops! (Thanks to my dad wrangling a better financial aid package, covering a good portion of the tuition himself, and a generous helping of student loans, I was able to go there.) Back then, it was all about the experience, and I still don’t regret my choice for a second. For adult education, I can’t think of a scenario where an expensive private college could add a commensurate amount of value to the old resume to make it worth the expense. I guess there might be specialized fields where a certain college could guarantee a prime career. I don’t know of any personally, but I’m not ruling out the possibility.
If you’re really tempted by a private school, or hesitant about a “lesser” school, then maybe an informational interview with someone in charge of hiring in your desired field could illuminate exactly how valuable the name at the top of the diploma really is in getting a job.
I’ve actually considered jumping back into education myself, just to train for a second possible career so I won’t be so completely tied to editing and proofreading. But I have no interest in adding significant debt for something that’s just an alternate career possibility, so A) I’m going to wait until we’ve paid off all our other education to decide and B) I’m going to go the community/technical route if it doesn’t seem like a hindrance to getting a job in my chosen new field.
Those are my thoughts, but it’s not a subject where I’ve spent a huge amount of time considering the choices; my family has just stumbled through the experience dealing with it as we go. Does anyone else have any perspectives on these dilemmas?