Studen Loan Debt an Allowed Expense?

user_13249 2009-03-27 12:58:10 UTC #1

Due to the big down turn in the stock market, is it a valid strategy to borrow more now and use 529 money as late as possible? I do have two children with the 1st graduating shortly. The 2nd is two years behind. So I see that I can shift 1st child funds into 2nd child account. But can I also consider paying back student loans from 529 funds as an option? Is it legal or allowed to do that after a child completes college?

drew 2009-03-27 14:43:33 UTC #2

NO--You cannot use 529 to pay off loans.

The only exception is if you pay tuition via loan then distribute to pay tuition in same period in effect you are not paying off loan--EG you pay tuition vial loan in Jan then reimburse tuition before Dec 31 from 529--this is a word game that works in a narrow sense --but correct answer is LOAN is not a qualified distribution! Your call when to tap 529 or other loan sources--sort of depends on rate of return vs actual loan interest rates --of if interest is suspended as in Stafford loans .

featherbed 2009-04-02 11:15:52 UTC #3

Is there any pending initiative in Congress to allow student loan debt service as a qualified expense under 529? It seems like a reasonable idea, given the loans are used to pay for qualified expenses. It would also have the impact of allowing 529 plans to recover from the recent stock market hit at the expense of interest on the loans.

drew 2009-04-02 14:09:29 UTC #4

Right now there are a variety of ways to get student loans forgiven--and for folks with a modest income the interest is deductible--and if you continue with schooling you get interest free float--and places like Yale give you free tuition anyway if your parents earn less than 100,000--so what more do you want!

Next you'll want me to pay you to get As or B's----absurd! (Whoops, Sorry but we already do that is some public schools.)

At some point it begins to sound like kids are entitled to 4 years party time.

Hey my MIL spends about $8000 a MONTH for care in a nursing home at age 97--it really hurts to cash in her limited resources in a down market--so why don't you come up with a plan to help her--after all she has very limited time to recover and most college kids have a long life ahead of them to recover from a down market..

(Were I less honest I'd deliberately impoverish her and send the bill to the public dole along with most others!)

aaronsinek 2020-02-20 06:49:04 UTC #5

Taking a student loan comes with many pros and cons. Some of the pros are:
You can study without thinking about money much. The loan you took will be enough to pay off your bills. You would pay your loan back after you get a job.
Some of the cons are:
You will be in huge debt. If you don't get a job you won't be able to pay off the loan. Many student failed to get a job, but you can't declare bankruptcy on it.
In business loans, there are pros and cons as well. Like if you take an IVA debt you will be able to declare bankruptcy, you can pay it back with small monthly installments, etc.