Short term loan or Long Term Savings?

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Amarowsky:

I agree generally - this is why I am going for 2/3rds cost of wherever and the 1/3rd is on them - jobs, scholarship, work study, whatever they have to do.

I also feel like part-time work during college keeps them a bit out of trouble. Rather than spring break and blowing $2000 on that that some of my friends did. . .they are working during spring break and summers.

Even 2/3rds is daunting. . .estimates come in around $80,000 for 4 years, depending on the school. (80K is just an average, could be more, could be less for each of our 3 children).

[disneysteve]

$40,000.00 for one year at school is kinda a high number Steve.

I think it is a VERY high number. My point was that the same school was less than 1/4 of that just 20 or so years ago. Ask the average 50 or 60 year old worker if they are earning more than 4 times what they made 20 years ago. I bet most of them will say no. I' ve been working in my field for 15 years. I currently make about 2 times my starting salary in 1993. So if college costs have gone up three-fold but my salary has only doubled, my ability to pay for my kid's college education has diminished.

I realize many schools aren't 40K/year. But they aren't cheap, either. Rowan, the local NJ state school, is $20,500 for in-state residents and $28,000 for out-of-state students. And that's this year. Next year, it will likely be 6-8% higher, and the next year and the next year. Plus all the related expenses like books and materials, a computer, commuting costs, etc.

So most families can't realistically expect to pay 100% of the tab, especially if they have multiple children.

[jIM_Ohio]

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?

Pay cash for the car before paying down mortgage. Keep debt simple and to a minimum.

Could you post mortgage details (payment amount, years left, what numbers were when you closed). I can run the numbers through an ammortization table I use for myself and post them here to let you decide. In general $400 extra on a $1200 payment is 4 extra payments per year. Simple math suggests this will be close. If I remember the prior discussion, I think it will work.

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JimOhio,

Let's see. . .got a 162,500 mortgage 4 years ago. . we "equity accelerated" by making 2 1/2 month payments per month instead of one payment.

Payment is 2 $514.22 payments per month.

It was a 25 year mortgage. I have actually been thinking of going to a 10 year mortgage to refinance but maybe this is better - to just advance pay.

[jIM_Ohio]

JimOhio,

Let's see. . .got a 162,500 mortgage 4 years ago. . we "equity accelerated" by making 2 1/2 month payments per month instead of one payment.

Payment is 2 $514.22 payments per month.

It was a 25 year mortgage. I have actually been thinking of going to a 10 year mortgage to refinance but maybe this is better - to just advance pay.

I need the interest rate to be sure I did it right.

Here is what I know now (and entered in)

$162500 loan amount
25 years loan period
5.79% interest rate gave a $1026 payment (which is $513 2X per month).
started loan on 8/1/2004
started $400 payments on 9/1/2008

300th payment (payoff) is 8/1/2029 with no extra payments
$400 extra payoff is after 195 payments, 10/1/2020. Saves you more than 100 months on the mortgage.

Fell short 5 years. Not sure if the bi monthly payment schedule makes up for those 5 years or not.

Did same calculation- To pay off on June 1 2015 requires a $1200 extra payment (pays off mortgage at payment 131). (saves 170 months of payments). This might look daunting, but consider this is doubling the payment, more or less.

Again this does not factor in bi monthly payment schedule.


My suggestion- stick with $400 extra payment and kids 2 and 3 have the problem solved. Then come up with an acceptable solution for kid #1. Maybe find $50 extra in budget and set aside for them, or antipate earnings increasing between now and then. Or commit to paying loans for child #1.

If you do not pay off the mortgage, consider the following issues (problems):

1) You will have a $1100 mortgage payment
2) Childs 1-2-3 will have tuition bills due while you have the $1100 mortgage payment
3) the amount in the 529 plan for each kid will not be enough (probably) to cover tuition.

If you remove #1 from budget, the kids can use the money in budget for mortgage as the education contribution.

I can save and e-mail the ammortization schedule- send me a PM with your home e-mail.

[disneysteve]

College costs have skyrocketed way, way, way faster than inflation or personal income in this country.

I just watched a video report at cnn.money.com.

Since 1998, adjusted for inflation, median household income has risen 0.35%.

Average public college tuition has risen 53%.
Average private college tuition has risen 33%.

[maat55]

You could move to Okla. and get free college. Or better yet, make your kids study harder and get grants. Either way, I would buy a cheaper van.

[amarowsky]

I lucked out with my school, having work help me out with it. And im just lucky I only have to pay local tuition for my community college. I do expect the prices are gonna jump up drastically soon, because right now they're only $70 a credit hour. And they just added a "vista-tech center" supposed to be the top 5 culinary schools in the country, just added a new bio-research building, and they have had word going around for the past few years that they're going to become a 4-year university.

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JimOhio,

All things considered, your solution may be the best one. My interest rate was 6%. Getting a no-market-risk 6% return on my college money invested seems pretty good right now in this market.

And it is something I could also do for "us" vs. the kids like you said.

The only thing though is when we have the SavingAdvice arguments about home being included in your retirement net worth. . .the people here will think I am worthless for just owning my house and that I am silly for including my hard work into that.

[disneysteve]

The only thing though is when we have the SavingAdvice arguments about home being included in your retirement net worth. . .the people here will think I am worthless for just owning my house and that I am silly for including my hard work into that.

Since I'm one of those who doesn't count my home as part of my retirement net worth, let me chime in.

I see nothing wrong with this plan. If I could have my mortgage paid off before DD started college, I would probably consider the same thing. Pay off the mortgage and then use your former mortgage payment to pay college costs in real time.

One thing to remember, though, is that you won't actually be earning 6% on that money. Your real interest rate after you include the tax deduction is probably more like 4.5%. So if you are happy earning 4.5% on your college savings, that's fine. Just keep in mind that college costs are rising considerably faster than that so you may be losing ground to inflation in the process.

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One thing to remember, though, is that you won't actually be earning 6% on that money. Your real interest rate after you include the tax deduction is probably more like 4.5%. So if you are happy earning 4.5% on your college savings, that's fine. Just keep in mind that college costs are rising considerably faster than that so you may be losing ground to inflation in the process.

That's why initially I came in with the suggestion of doing an auto loan.

If inflation is a real entity to be tackled, and one I should take into account, you would think borrowing now would be borrowing in cheap dollars for the car. Yeah, it's a depreciating asset but I would then have my 15K working in college savings beating the ugly monster of inflation (which is really a 2-headed monster when you look at it llike this). And in 3-4 years, the auto loan is retired thereby freeing up the $300-400 month once again.

I'll consider all angles.

[disneysteve]

That's why initially I came in with the suggestion of doing an auto loan.

If inflation is a real entity to be tackled, and one I should take into account, you would think borrowing now would be borrowing in cheap dollars for the car.

What would the rate be on the auto loan? Probably not low enough to make it worth doing.

[Scanner]

Another consideration is purely "philosophical."

One of my favorite books is "Richest Man in Babylon". . .the ol mantra "Pay yourself first."

Of course, I am not "paying myself" but in a way, I am paying "the kids" first and the car dealer second if I keep the money "semi-liquid" in a 529.

[Scanner]

The rate on the auto loan? Oh, you know that depends on the dealer, who will usually weave it into the price.

I haven't researched it lately but I imagine eloan.com has auto loans going for around 6-8%.

EDIT - just checked - it looks to be 7.5%-8%.

[disneysteve]

The rate on the auto loan? Oh, you know that depends on the dealer, who will usually weave it into the price.

I haven't researched it lately but I imagine eloan.com has auto loans going for around 6-8%.

EDIT - just checked - it looks to be 7.5%-8%.

So you'd have to have a reasonably good chance of outperforming 8% with the money to make it worth taking a loan for the car. I wouldn't take that bet. I'd skip the 8% loan and pay cash.