Student Loan or Use Emergency Fund???

[DivietoDiSosta]

Hello,

I'm looking for some help deciding how to pay my graduate school tuition this fall.

I have the option of receiving an unsubsidized federal loan for the amount I need (about $7000) at the current interest rate of 5.41%.

I also have an emergency fund of a little over $20,000, in an online savings account earning 0.8% interest. This is about 4-5 months of mortgage payments and living expenses, which I consider to be borderline sufficient (I would prefer to have 6 months).

I also have retirement savings (Roth IRA + 401k) of about $55,000 and personal investments (mutual funds + individual stocks) of about $12,000 which have all been growing somewhere around the market average for the year (11-13%). I could tap these if needed, but considering the return these are getting now, I plan to leave them where they are.

What would you do in my situation? Should I take the money from the government, or spend my emergency fund and avoid paying the interest? Or should I cash out my investments instead?

Thanks for your help!

[Goldy]

Are you planning to work during grad school? If you are then I would use the money from your EF which would leave you with 3 months cushon should something happen. I wouldn't cash out any investments since you have enough in your EF in my opinion.

[bjl584]

I don't consider going to school an emergency, so I wouldn't use any money from my EF.

I worked my way through grad school with a combination of loans, and paying some of it outright from general savings.

[MonkeyMama]

I'd personally cash out some investments to pay for tuition. This is an investment in your future earnings. The market is relatively high. (If the market was obviously rock bottom, like 2008, I'd pay cash).

But, it depends. What is your age and how are you going to pay for the rest of Grad school?

[KTP]

I'd personally cash out some investments to pay for tuition. This is an investment in your future earnings. The market is relatively high. (If the market was obviously rock bottom, like 2008, I'd pay cash).

But, it depends. What is your age and how are you going to pay for the rest of Grad school?

Interesting. How can you determine the market is high without knowing the future? The market could easily advance another 20% as it did in 2011 when it looked high, and in 2012 and 2013 when it looked high (relative to 2009/2010).

If you have traveled back from the year 2018, then I apologize and am curious how the device works.

[dojo]

I would probably go into my emergency fund, since I'm very scared of the idea of getting into debt again. In the end you're the one to decide and weigh in all the details

[emanon1501]

Don’t use EF, investment, or 401K for this. Student loans payments are deferred until you graduate. It makes no sense to use money from EF, investment, or 401K to pay for this if the first payment is not due until after you graduate. You might need EF for something else down the road.

Just take the loan and worry about paying it off later considering its only $7,000. When you graduate and get a better job, then use the money from EF to pay it off before the first bill is due. Who knows, things may work out so well that you will be able to pay down or pay off the loan before you graduate. This is exactly what I did and I graduated in 2012 with no student loan and I had $10,000 paid off before my first payment was due.

[riverwed070707]

I agree it depends on individual circumstances but generally speaking I'd lean toward efund since pulling from there won't wipe you out entirely.

Are you married? Will you work while in grad school? If yes, I'd lean toward using efund since you can rebuild it during school. If no to both, I'd lean toward student loans.