I have a friend who is going to college.When she was born, I started a UGMA account for her and put money in it each year for her college expenses. It got to be worth over double what I initially invested, in spite of a few companies that went bankrupt. Luckily, those were very small positions resulting from spin-offs such as from VZ, such as the Yellow Pages company.But there is not enough money in there for four years of college expenses. She has now completed a year of college and is starting her second year this fall. She has a fair amount of cash and shares of BRK.B and VZ. VZ pays a dividend; BRK.B does not. The interest on the cash in her UGMA account is almost zero. This should be enough to pay her second year of college expenses.The school suggests she get a $6000 student loan at 4% to pay some of her college expenses, since the school thinks the prices of student loans will go up in the future. On the other hand, I am opposed to student loans if they can be avoided. At his point, my opposition to getting a loan when it is not immediately needed is just a prejudice, so I am quite willing to change my mind. The thing is that in my opinion, the US government cannot afford to raise interest rates on its bonds at all, but of course the government could certainly raise the interest rates on student loans.If I could be sure she would make over 4% on her investments over the next year, it would seem a good idea to take the loan. But in the short term, I cannot be sure of anything. The tin foil hat team thinks the stock market may crash or worse, for example. I do not consider myself on that team, but some of their arguments have merit. If I thought the interest rates on student loans would go up appreciably in the next year, there might also be some point in speculating in interest rate futures (if that is what taking out a loan that is not immediately needed in order to lock in an interest rate is).So is this the right board to ask questions like this? If not, could someone suggest a more appropriate board?Have others thought about this? I could use viewpoints different from my own.
This could be a good board :http://boards.fool.com/paying-for-college-100157.aspx?mid=31....The one caveat I have is that the offer of a loan is based on the college's estimate of expenses for the years of school, including living expenses. Before doing anything, you might help her review what she thinks is a realistic budget for this year of school.When my kids went to college, their expenses were definitely less than a financial aid office projected.Because I need to head back to a conference, I will also add if the UGMA account was intended for college, I would use it before taking a loan. Each year's financial aid is based on the assets at that time so I would start spending them. Also, if her parents are involved and file US tax returns, they need to project any tax savings from possible education credits and deductions - http://www.irs.gov/uac/Tax-Benefits-for-Education:-Informati...There are lots of moving parts involved in this - great that she also has you helping her.
If she does get a student loan (and it should really be her and not you, no matter how generous you want to be), only get a Federal loan and not a private one. Private student loan lenders can rip your life apart just as you're trying to get started. Federal loans are much easier to manage - you can pay them back based on income and they could even be forgiven in some instances.https://studentaid.ed.gov/sa/types/loansFuskieWho notes she can also look for a part time job to help defray tuition costs or to save up for future payments...-----Ticker Guide for The Walt Disney Company (DIS), Orbital ATK (OA)Disclosure: May own shares of some, many or all of the companies mentioned in this post
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