Now or Later: When to Use Your College Savings?

Every spring, we talk to hundreds of college-bound seniors and their families about paying for college. And for those that have saved (great work!) they're wondering when, exactly, to use their savings. We're often asked, "Should we borrow now to pay the college bill and keep the money we have saved for later years? Or go ahead and use the savings now?"

As usual with important financial decisions, it depends. Every family's situation is different, so once you've reviewed your family's finances – and maybe consulted with your savings account administrator – you can decide what's best.

If you've set money aside to pay for your child's college education, it may make sense to use those savings now for their intended purpose. There may even be tax benefits for doing so. Besides, borrowing means you'll be paying interest, which increases the total cost of education. Why pay more than you have to? And if you wonder if taking on educational debt now may help you qualify for more financial aid next year, the short answer is: no, educational debt – or any kind of consumer debt – has no impact on the federal financial aid formula.

With that said, it can be scary to take large chunks out of your savings after spending years building it up. Whether you've saved a little or saved a lot, there's no one right way to use your savings to pay for college. Your strategy will depend on how much you've saved, how long you want your savings to last (4 years? 5?), and any special circumstances you expect.

Some families divide their savings equally over all four years. Others use more savings up-front to minimize the number of years interest will accrue on deferred loans. Does your son or daughter plan to do an internship or semester abroad? You may want to set aside something extra for that time. And if you have younger children as well, don't forget to consider how you'll help cover their costs when the time comes.

Have you saved in the MEFA U.Plan or U.Fund?

MEFA offers the U.Plan Prepaid Tuition Program and the U.Fund 529 College Investing Plan. If you saved in either program, here's how to access your savings in order to pay your college expenses.

If you use another savings plan, contact your savings plan administrator to find out how to disburse your savings.

And if you need to borrow, use our Student Loan Payment Calculator to calculate your estimated monthly loan payment to make sure it can fit within your budget. As you make your college payment strategy, we encourage you to give us a call to ask any questions and discuss your plan. You can reach us at (800) 449-MEFA (6332).

Watch the Saving for College webinar