Helping our kids pay for college: It’s a subject many of us dread, and with good reason. We all know how college costs have soared, and with tuition inflation averaging 5% a year, they could more than double over the next 15 years.
Typically many of us have planned to pay for college with a combination of student loans, a 529 college-savings plan and, knock on wood, financial aid and scholarships. This solution is far from perfect. First of all, government-backed student loans are too often millstones around the necks of college graduates. As soon as they start working, a hefty chunk of their salary typically must go to repay these loans, and the payments can drag on for decades. If the borrower is in a financial pinch, student loans offer him or her little flexibility.
As for 529 plans, many participants have found that they may not live up to their billing as a smart college-savings solution. First of all, 529s are not really savings vehicles—they are investment products. That means they’re subject to loss. When the market tanks, you may find yourself well short of funds. What’s more, 529 plans come with strict government guidelines about when they must be used and what they can be spent on.
Many people figure that, however imperfect the system is, there’s really no other viable option. But that is not true. A small but growing number of families are turning to whole life insurance as a college-funding solution.
In a nutshell, financing college education this way involves using a policy specifically designed to grow large cash values. Over time, this cash becomes collateral for loans made to the policyholder from the insurance company, with very favorable terms. As I noted in February’s blog, this is known as “Infinite Banking.”
Unlike with 529 plans, Infinite Banking allows us to access funds whenever they’re needed. Suppose your child for some reason starts college later in life? With 529s, that’s a no-no, and you can expect to pay stiff penalties. With properly structured permanent life insurance policies, it’s not a problem. The solution is flexible.
What if after graduation your child starts his or her career in a relatively low-paying job, or even an internship? With proper planning, insurance allows repayments to be made when you or your child are ready to make them. Again, flexibility.
By the way, suppose you child decides not to attend college at all? The funds within the policy’s cash value can be used any way your family deems proper—for retirement, as capital to start a business—it’s up to you. The money is there whenever you need it. You don’t answer to a bank or to the government, just to yourselves.
Maybe the best part of using insurance to finance college is what happens as the loan is repaid. You’re not paying money to a bank, never to see it again. In an insurance policy under your child’s name, he or she is repaying themselves, effectively making themselves whole. If it’s under your name, they’re making you whole.
Of course, these policies have to be funded diligently. But the returns on the money you invest are guaranteed—you’re not gambling your college savings in the stock market.
On top of all of its benefits, this approach to paying for college comes with a bonus, in the form of a death benefit. A death benefit is a way to help create multi-generational wealth—and that’s an investment that goes even beyond college.
If you’d like to learn more about using insurance for college or for other purposes, please don’t hesitate to contact me.
