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It is cheaper to save than to borrow. When families contemplate college
expenses, they can pay for it using a combination of past income
(savings), current income and future income (loans). This calculator
demonstrates the tradeoffs between the different ways of paying for
college.
For example, if you save $200 a month for ten years at 6.8% interest, you will
accumulate $34,432.58 to help pay for college. If instead of saving,
you decide to borrow the same amount, you will pay $396.25 a month for
ten years at 6.8% interest. The choice of whether to save in advance
or pay afterward is your prerogative, but this example clearly
demonstrates that paying afterward will cost twice as much. Varying
the interest rates changes the multiplier slightly, but it is always
less expensive to save than to borrow.
The savings interest rate listed below is the current average interest rate on
six month certificates of deposit. The loan interest rate and fees are
from the PLUS loan.