->20% Haircut. Good point. I am going to have to do some soul-searching and spread- sheet work to see where my head stands on that scenario. My gut says you are right. This is worthy of a separate reply.
-> Using funds to repay funds. Yes, the plan now stands that I will invest the 9K I have above the 04/05 contributions in an index fund (e.g. VANGUARD 500) and draw down each month to make the minimums. I want this plan to be cash-flow neutral or positive. Taking inflation into account this requirement means I only need about 1.5-2% investment for that to happen. My savings account does that already and, in fact, has jacked the rates twice in the last 6mos. With Greenspan moving rates up that is only going to continue.
-> Other card debt. Yes, I have other card debt but it is all at 4% fixed-till-paid or lower. So I gain nothing, except credit rating points, by getting Peter to pay Paul.
-> Margin equivalence. I have to disagree with you there. This is not at all like buying on margin. With margin, the brokerage can force you to sell at loss, here, there is no way for the CC's to reach into the 529 account to liquidate assets.
-> Deferred Student Loans. I have to disagree with you here. I just sat through a 2 hour lecture from a FA pro on this. These deferred student loans are need-based and very limited in availability and coverage. Basically your child has to be legally emancipated for that to fly. The low interest rate loans for parents charge interest right away, are also need-based, and don't cover the whole family contribution. Middle-class parents, if you want to get your kid through college, you are going to have to finance it. This is going to mean some sort of loan, probably a second mortgage.
->Rate Jacking. This is a good point. The CC's will jack your rate sky-high if you are in substantial default. My experience of this is that it takes more than one accidently late payment before that kicks-in. This is because the CC's all know there is a myriad other cards waiting to grab high-rate balances.
->Job loss. This is a good point. We are a two-income family so this is not totally disasterous. It may mean that we have to take non-qualified withdrawals to make card payments. Taxes and and penalties will have to paid on the earnings but not on the contributions. Additionally, NYS has provisions to recapture deductions on non-qualified withdrawals.
Good post rsinj, thanks.