Don’t burden your student with debt
Many students do not qualify for need-based financial aid, such as that available from the federal government. For these families, financial aid often consists of student and parental loans, ultimately resulting in heavy debt burdens after graduation.
Today,two-thirds of college students borrow to pay for college, and their average debt load is $23,186 by the time they graduate. These graduates will be repaying those loans for years after attaining their degree.*
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Mary and John Smith are reviewing their financing options to see which is the most cost-effective way to fund John Jr.'s education in 10 years. Assuming he attends a public college that will cost $100,000 over four years*, clearly the cost to invest is substantially less than the cost of a loan.
OPTION 1
COST OF INVESTING $58,320 |
| They will need to invest $3,888 a year over 15 years, assuming a 6.5% annual return compounded monthly to reach their goal of $100,000.
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OPTION 2
COST OF BORROWING $202,000 |
| If they decide to fully finance his education with a loan, assuming a fixed rate 6.8% Federal Stafford Loan, Mary and John Smith will add $102,000 in accumulated interest to the total cost of their son's education. |
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This illustration is hypothetical and not representative of the performance of any particular investment. There are risks associated with investing, including possible loss of principal. This illustration does not take into account the effect of the performance of different investment vehicles.
*Source: National Post secondary Student Aid Study 2008.
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