Want to start saving for your child’s future but don’t know where to start? Conventional wisdom tells us to save for college in one account and save for retirement in another. With so many options out there, it can be confusing which one might be right for you and your family. Today’s video covers your basic options for paying for college. The most common ways of paying for college are cash, cash flow, and borrowing/financing. We will give you three great reasons to why you should fund a whole life insurance policy to pay for college!
“Additionally, the money that you save in either savings account or 529 accounts are disclosed on the FAFSA form, so you’re actually going to increase the cost of college for your family.”
Are you thinking about paying for your children’s college education? The problem with funding your children’s education oftentimes isn’t a problem of funding the actual education. It becomes a question of, how do you fund this huge expenditure that sometimes costs more than your home and still stay on track for your retirement goals. No parent should have to choose between sending their children to college and funding their own retirement.
Conventional wisdom to tells us to save for college in one account and retirement in another account. The problem with that is, it leaves a good chunk of our money inaccessible at the time we need it most. Our process for funding college tuition includes a whole life insurance policy and you may be wondering why on earth would I fund a whole life insurance policy for college tuition and there really are three reasons. Access and control. It’s fast and has continuous compounding of interest. Basically, there’s only three ways you could pay for anything. Cash, cashflow, or borrow. Let’s look at these three ways. The first method of paying for college we’re going to look at is paying cash, whether that’s from a savings account or a 529 plan earmarked for college tuition. In order to pay cash, you have to have saved first, so you will have access to that money and control of that money, but when you pay for college, you’re actually wiping out compounding forever on that money.
Additionally, the money that you save in either savings account or 529 accounts are disclosed on the FAFSA form, so you’re actually going to increase the cost of college for your family. You’re actually being penalized for doing the responsible thing, which is to save for your children’s education. The second method of funding college that we’re going to look at is funding it out of your monthly cashflow, and let’s face it, if you’re fortunate enough to be able to pay out of monthly cashflow, it assumes you have access to that money. However, you’re giving up control of that and with that, you’re forfeiting the ability to ever earn compound interest on that money. The third method of paying for college is to borrow or finance and basically there are only four types of loans you can get for college. First are Stafford loans, they’re in your child’s name, second are parent plus loans. Third, are home equity loans and forth, are life insurance policy loans.
We’re going to discuss why life insurance policy loans as the preferred method of financing your children’s education. Let’s look at parent plus loans. With the parent plus loan, you gain access to someone else’s capital with the collateral of your future income. So, you get money when you need it, when your children are going to college, but you’re giving up control of your current and future cashflow in order to send your child to college. Now it is FAFSA neutral, but because you gave up control, you forfeit the ability to earn interest now and in the future on that cash flow. What you really need to look out for with a parent plus loan is that it kills your ability to save for retirement, not only while your kids are in college, but for about 10 years after that. It really hinders your ability to save for retirement on your own terms. So basically, all you have to show for it is a diploma in your child’s name.
Next, let’s look at a home equity line of credit for paying for college. With that, you have access to the money because you have equity in your house and the ability to repay the loan. But you obviously don’t have control because the bank controls the situation. They can call that loan whenever they want and you’re also forfeiting the ability to earn interest on that cash flow forever. It’s not going to increase the cost of college and you are rebuilding your home equity, so hypothetically you could have access to that money again in the future. Next we’ll look at using life insurance policy loans to pay for college tuition.
Now using insurance policy loans is kind of a hybrid between savings and financing and that the money that you have access to in your policy is the money that you’ve actually saved. However, in contrast to traditional savings account and 529 plans, this money is FAFSA invisible, so it’s not going to go down on your FASFA sheet and it’s not going to increase the cost of your college tuition. Additionally, you’re in control of the borrowing process as opposed to parent plus loans or home equity lines of credit because life insurance policy loans have an unstructured repayment process, meaning that you control the terms and conditions as to when or even if you pay back those loans. Additionally, with life insurance policy loans, you’re not borrowing money from the account. You’re borrowing money against the account so you’re never going to be interrupted in the compounding of interest on that money.
You have access, you have control, you have FAFSA invisible and you’ll have continuous compounding. That’s why we recommend life insurance policy loans to pay for college. That’s why we believe life insurance policy loans are the best way to fund your children’s college education. It allows you to send your children to their dream school without having to reduce your current lifestyle or derail your retirement in order to do so.
