Saving vs. Borrowing could cut college costs in half.
There are many ways that a family can pay for the cost of college. But some of those options can be more costly than others. Two of the ways that a family could choose to pay is by either saving in a 529 plan or borrowing with loans. The example below illustrates how one family could choose to pay for $25,000 in college costs.
A family choosing to invest about $86 per month for 15 years in a 529 plan would have made a total out-of-pocket investment of about $15,500.
With potential earnings, this could amount to $25,000 to use toward college expenses. A hypothetical 6% annual return is assumed.
A family choosing to borrow might pay about $265 per month over 10 years for a total out-of-pocket cost of nearly $31,800 for $25,000 in loans.
This assumes a 4.99% interest rate on subsidized Federal direct undergraduate loans, which do not accrue interest during college.