Quote:
Originally Posted by Landroval
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A college degree, depending on college prep accomplishments in high school, requires 4 to 5 years to accomplish.
A Roth-IRA account requires a 5 year investment horizon on contributions (moneys deposited into the account) before the original contributions are able to be withdrawn without distribution penalties.
Student loans do not accrue interest until 6 months after your graduating semester and then accrue interest at roughly 3% over the federal interest rate set at the time they are borrowed.
The average rate of return on investing in the S&P (SPY ETF) over the past 20 years is 10.05%.
Therefore, I am advising my daughters to apply for a ton of grants and scholarships to where all their college and living expenses are covered AND to max out their student loans specifically so that they can deposit the loan money directly into their Roth-IRA, because if they apply for PAYE, or REPAYE (income-driven repayment program) they'll pay like 95$/month on the 30k in loans, and five years after they graduate a 10% compounding interest on 3750 invested twice annually, will have the balance at approximately 63k five years into their career, in which they can just withdraw the 30k in contributions tax-free, and pay off their loans in full while netting 33k in profit for their retirement which they can borrow 10k against for a first-time home buyer
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This is not good financial advice, this is why:
Quote:
Originally Posted by Landroval
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Student loans do not accrue interest until 6 months after your graduating semester and then accrue interest at roughly 3% over the federal interest rate set at the time they are borrowed.
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This is false. Federal unsubsidized student loans begin accruing interest immediately upon disbursement, at roughly 7%. Subsidized loans do not accrue until you graduate, but they are based on need. Your daughters will not qualify for subsidized loans basically if you are in any way contributing financially, which you will be if they are sticking all the loans they take out into an IRA or if you are filing them as dependents / they are younger than 25. "Advising" them to win grants/scholarships is not advice, it is a wish for achievement, and again they won't qualify for most of these unless they can demonstrate need or are stellar academically.
You also can't count 100% on the S&P 500 performing like that, especially not at 5 or 10 years, and you're gambling against a big fat student loan with 6-7% interest. Income driven repayment plans are not going to be $95 a month in payments, more like $200-$300 realistically, and at 5 years that $30k loan is going to be more like $45k unless subsidized.
The better advice imo is to have them do their general education basically for free at a community college and then transfer to a college or university to finish upper division coursework. They should only be going to prestigious universities if they are STEM, with some exceptions; otherwise they should find a much more affordable state school with a good program in their chosen major, and if they have great academics, these schools are also more likely to offer scholarships to headhunt them from more selective universities. Employers don't care about your undergrad unless you went to an elite uni or very locally renowned school, and they should vet the quality and quantity of internship/employer connections in a given program.