Pay tuition cash or use student loans and invest instead or both

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Rsanchez
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Joined: Sat Sep 30, 2017 7:22 pm

Pay tuition cash or use student loans and invest instead or both

Post by Rsanchez » Wed Feb 14, 2018 12:35 am

Hi All,

I am a working doctoral student. I’ve decided to pay for my PhD in cash. About $500 a month. The program is 4-5 years. A total of about 30K

My question is - should I accept a loan for the full cost of tuition and put it in an established index fund, or another fund, and continue to make payments on the loan? My reason for paying cash is to defray the cost of I interest in the loan at 6.8% - but if the fund returns greater rates then I would have made money on it and still have the money to pay for the interest accrued.

Hope that makes sense. Thanks for your help.

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munemaker
Posts: 2986
Joined: Sat Jan 18, 2014 6:14 pm

Re: Pay tuition cash or use student loans and invest instead or both

Post by munemaker » Wed Feb 14, 2018 12:45 am

If it were me, I would pay the tuition. I don't think it is a good idea to invest borrowed money.

Nate79
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Location: Portland, OR

Re: Pay tuition cash or use student loans and invest instead or both

Post by Nate79 » Wed Feb 14, 2018 12:59 am

Good luck finding a guaranteed investment of 6.8%. The market return over the next 5 years could quite easily be negative or zero.

j0nnyg1984
Posts: 393
Joined: Sun Apr 24, 2016 9:55 am

Re: Pay tuition cash or use student loans and invest instead or both

Post by j0nnyg1984 » Wed Feb 14, 2018 5:03 am

Pay cash.

Why does everything need to be leveraged to the max?

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Toons
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Joined: Fri Nov 21, 2008 10:20 am
Location: Hills of Tennessee

Re: Pay tuition cash or use student loans and invest instead or both

Post by Toons » Wed Feb 14, 2018 5:39 am

Without a doubt.Pay Cash.
No need for leverage whatsoever.

:happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

mega317
Posts: 2198
Joined: Tue Apr 19, 2016 10:55 am

Re: Pay tuition cash or use student loans and invest instead or both

Post by mega317 » Wed Feb 14, 2018 6:30 am

To put the above correct answers into context, know that a common question on the forum is if one should pay cash or take out (or keep) a mortgage at less than 4%, sometimes deductible to an effective rate of less than 3%, or a car loan of less than 2%. 6.8% is crazy to me if you don't have to.

gotester2000
Posts: 423
Joined: Sun Nov 12, 2017 1:59 am

Re: Pay tuition cash or use student loans and invest instead or both

Post by gotester2000 » Wed Feb 14, 2018 7:51 am

You have enough on your hands to work on - why add the stress of beating a 6.8% return?

chevca
Posts: 1546
Joined: Wed Jul 26, 2017 11:22 am

Re: Pay tuition cash or use student loans and invest instead or both

Post by chevca » Wed Feb 14, 2018 7:55 am

Pay cash!

You have the rest of your career to invest and will likely have lot more money to do so. This amount is pennies to you in the big picture.

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Tamarind
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Re: Pay tuition cash or use student loans and invest instead or both

Post by Tamarind » Wed Feb 14, 2018 7:57 am

Nate79 wrote:
Wed Feb 14, 2018 12:59 am
Good luck finding a guaranteed investment of 6.8%. The market return over the next 5 years could quite easily be negative or zero.
This. You do not know in advance if short term returns will beat your return on avoiding interest. Additionally, in a worst case scenario your student loans, unlike consumer loans, mortgage, or margin, are not dischargeable in bankruptcy.

There are times to consider leverage at favorable interest rates. This is not one of them.

Rsanchez
Posts: 7
Joined: Sat Sep 30, 2017 7:22 pm

Re: Pay tuition cash or use student loans and invest instead or both

Post by Rsanchez » Wed Feb 14, 2018 8:58 am

Thank you all! I appreciate the feedback.

As advised, I’ll steady the course. Cash is king.

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ruralavalon
Posts: 13189
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Pay tuition cash or use student loans and invest instead or both

Post by ruralavalon » Wed Feb 14, 2018 9:09 am

Rsanchez wrote:
Wed Feb 14, 2018 12:35 am
Hi All,

I am a working doctoral student. I’ve decided to pay for my PhD in cash. About $500 a month. The program is 4-5 years. A total of about 30K

My question is - should I accept a loan for the full cost of tuition and put it in an established index fund, or another fund, and continue to make payments on the loan? My reason for paying cash is to defray the cost of I interest in the loan at 6.8% - but if the fund returns greater rates then I would have made money on it and still have the money to pay for the interest accrued.

Hope that makes sense. Thanks for your help.
Rsanchez wrote:
Wed Feb 14, 2018 8:58 am
Thank you all! I appreciate the feedback.

As advised, I’ll steady the course. Cash is king.
That is the right decision.

Good choice.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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Watty
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Re: Pay tuition cash or use student loans and invest instead or both

Post by Watty » Wed Feb 14, 2018 2:56 pm

Rsanchez wrote:
Wed Feb 14, 2018 12:35 am
A total of about 30K
Not to pile on but if you are able to invest the money and make more, after taxes, then you might clear one percent if you do very well and don't take a lot of risk. 1% is only $300 which is not a life changing amount. Having $30K in debt could cause all sorts of problems if the investments do badly or you run into unexpected life events.

If you don't have a seperate emergency fund then taking on a little bit of students loans could make sense just so that you don't get into a bind if you have some unexpected expense.

Rsanchez
Posts: 7
Joined: Sat Sep 30, 2017 7:22 pm

Re: Pay tuition cash or use student loans and invest instead or both

Post by Rsanchez » Wed Feb 14, 2018 3:22 pm

Watty wrote:
Wed Feb 14, 2018 2:56 pm
Rsanchez wrote:
Wed Feb 14, 2018 12:35 am
A total of about 30K
Not to pile on but if you are able to invest the money and make more, after taxes, then you might clear one percent if you do very well and don't take a lot of risk. 1% is only $300 which is not a life changing amount. Having $30K in debt could cause all sorts of problems if the investments do badly or you run into unexpected life events.

If you don't have a seperate emergency fund then taking on a little bit of students loans could make sense just so that you don't get into a bind if you have some unexpected expense.
Thank you!

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