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Let's start this question from scratch

A

archcommus

Diamond Member
This came up in my thread about investing awhile back, but I'd like some more opinions focused just on this topic now.

The question is, when working a lot and making money in the summer, and you are a college student, how do you decide how much to put towards tuition, how to much to let build up in a savings account like ING, and how much to put aside into a mutual fund or IRA, if any at all?

Some say put it all towards tuition, to avoid as much debt as possible, and that you'll have plenty of time to start saving after college.

Some say to build up money in a savings account to build some emergency cash.

Others say to put as much as possible into an IRA to benefit from starting early, even if that means having an abysmal savings account and getting thousands more in student loans.

So what do you think?
 
depends on the interest rate you'll be getting after your student loans go into collection. I'd think if it were 5% or higher, it would be best to prevent as much debt as possible since that interest rate will beat all savings interest and most short term mutual funds. What age are you planning to graduate?
 
Originally posted by: JoeKing
depends on the interest rate you'll be getting after your student loans go into collection. I'd think if it were 5% or higher, it would be best to prevent as much debt as possible since that interest rate will beat all savings interest and most short term mutual funds. What age are you planning to graduate?
Click to expand...

I'd have to say this is decent advice at worst.

:thumbsup:
 
The answers of course depend on a lot of things.

First and foremost, everyone should have a little cash for emergencies. What good does an IRA account do (gaining maybe 5% a year at best right now) if you have to take out a 400% quick cash loan to pay off an emergency? What good does a small IRA do if you have to spend $50 repeatedly due to bounced checks, low balance bank fees, CC fees, late fees, etc. How much cash depends on your personal situation. I personally wouldn't want less than one month's salary in cash. For a student that is often $500 - $1000.

The ING type account also varies by situation. If you are borrowing a student loan at 5% a year (the expected student loan rate this July) or a CC at 15+%, is it smart to take that money and put it into an account that earns 3%? Of course not. But if you aren't paying other interest, then yes, it is beneficial to keep a bit more than your emergency cash in an account like that.

You may really need to worry about student loans. In years past, student loans could be obtained at a low fixed rate. Pres. Bush wants to change this. Students may be stuck with 6% variable loans starting this year. Thus, the old wisdom of getting tons of student loans to finance other things (such as getting a large 3% student loan and use it as your downpayment for a house) is no longer valid.

Retirement is probably a non-issue. I'd skip it now unless you are one of the rare people who knows you will max out your retirement limit shortly after graduation.
 
So don't worry about an IRA now, and don't keep much in ING either because of high student loan interest rates? So pretty much put most of what I earn towards tuition?

Bush, thank you. :disgust: Why does he want to do this?
 
If the interest rate on your student loans will be higher than the rate you can make in invensting or saving, then putting money towards the loans is the way to go.
 
So is that the definitive answer? If my student loans have a higher interest rate than ING, go ahead and (almost) deplete ING and put it towards tuition?

And definitely hold off on anything investment-related until after college, even maybe $1000 into a mutual fund or Roth?
 
definitivly I would say pay as much tuition as you can. No on is perfect with their savings, and there will be times when you might be tempted to dip into the MutualFunds. Then the penalties will kill you.

believe me student loan payments suck.
 
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