Compare saving versus borrowing to pay for college costs
The cost of college is daunting, and it's easy to put off saving for it. After all, you could always get a loan, right? Here's an example of two ways to arrive at the same destination. In both cases, your hypothetical goal is to have $25,000 to pay toward college costs.
Save
If you start now, setting aside $152 per month in a 529 education savings account, you’ll have invested about $18,000 over 10 years. If you could achieve a 6% average annual return on that investment, you could wind up with $25,000.
Borrow
If you borrow that $25,000, you’ll be paying interest, not earning it. Assuming you have 10 years to repay at a 6% interest rate, the student loan payments after graduation would be about $280 per month. You’d wind up spending more than $33,000 to repay the $25,000 loan. That's going to cost you $15,000 more than if you had put money aside earlier.
Assuming you’ll need more than $25,000 for college, think about how much more your monthly loan payment could be.
The chart below shows a comparison between saving now and borrowing later.
