Funding College Education & Student Loan Consolidation

Cracking the “how to pay for college” code has become a difficult problem to solve. In this video, we tell a story about two 18-year-olds planning to attend the same local university using different methods of funding their education. Liam uses a 529 plan and a student loan, while Emily uses The Perpetual Wealth Code™ and a student loan. The difference? About $50,000 realized over the next 30 years. 

Watch the video above or continue reading to see how you can fund your child’s education and consolidate student loans using participating whole life insurance. 

Both Liam and Emily’s parents make about the same amount of money, which means both families are in the same tax bracket. Liam is ready to go to college and has $42,000 in a 529 plan that his parents have funded over the last 10 years. Emily has $44,000 from her dad’s participating whole life insurance cash value which was built over the past 10 years and is now available through a policy loan. While both sets of parents paid approximately $38,000 to set up these funds for their education, the difference in money gained at the end is surprising. Let’s dig in to see why Emily’s dad made a smarter move with his participating whole life insurance policy.

On average, college expenses total around $21,000 per year. Because of this, Liam only has enough in his 529 plan to fund half of his college education. For the last two years, he decides to borrow the $42,000 through student loans. Because Liam’s parents make a decent amount of money, he won’t qualify for a subsidized loan. This means his loan will immediately start accruing interest.

On the other hand, Emily’s parents’ life insurance premiums aren’t considered as part of their income when it comes to qualifying for a subsidized student loan. This allows her to secure a subsidized student loan for the $40,000 left she needs for college and that won’t start accruing interest until she finishes.

Once they graduate college, Liam and Emily both secure jobs and begin repayment of their student loan debt. At 5% A.P.R., Liam’s monthly payment comes to about $250, which he will have to pay over the next 30 years in order to pay back his student loan plus interest. Emily’s monthly payment is slightly less at $215 a month. This is because she borrowed $2,000 less than Liam and because her loan wasn’t accruing interest during her time in school. At face value, a $45 difference in monthly repayments doesn’t seem like a big deal, but it is. 

Let’s fast forward eight years. Liam has paid about $23,916 on his student loan. Emily has paid about $20,614 on hers. However, Emily’s parents now approach her with a student loan consolidation option. 

Consolidating student loans is all about combining your student loans into one if you have multiple loans, and/or decreasing your interest so you can pay your loan back quicker. Deciding how to consolidate student loans depends on what type of loan(s) you have and your financial history. Most student loan consolidation happens through third-party lenders, and they make all the money off of your loan. 

Because Emily’s parents have a participating whole life insurance policy, they are able to loan her more money from her dad’s policy to pay off her student loan instead of relying on a third-party lender. She borrows the $34,341 from her parents and pays off her student loan. Emily now pays her parents the $215 a month she was paying for her loan and her parents write a check to the insurance company to pay the policy loan back. 

22 years later, both Emily and Liam have paid off their student debt. Liam paid $89,687 for his $42,000 while Emily has paid $77,303 for her $40,000. You can see that Emily paid $12,384 less than Liam, but what you might not see is that 73% of her payments or $56,689 went to her dad’s participating whole life insurance policy. Liam, on the other hand, has paid 100% of his $89,687 to a loan manager that he’s never seen. 

Liam did what most college graduates do. He borrowed the money and paid it back through a lending agency where the agency makes all the money. Unfortunately, this means Liam has nothing to show for paying back his student loan in full, and he no longer has the tax deductions on the interest he’s been paying for the past 30 years.

Emily’s dad discovered the power of utilizing a well-designed participating whole life insurance. He was able to control all the aspects of his policy which, over the years, grows to a face value of $334,857 with a cash value of $153,822. The cash value in his whole life insurance policy is $1,851 more than Emily paid for her entire education and her dad has made her the beneficiary of his policy. Even if Liam’s parents had saved what Emily’s parents were paying in premiums for their policy, they would only have $103,556 in savings, about $50,000 less than what Emily’s parents have in cash value with their participating whole life insurance policy. And there’s no additional legacy for Liam.

What Emily’s parents did to fund her education and consolidate student loans is a perfect example of The Perpetual Wealth Code™. If you’re looking to plan ahead to fund your children’s education, let us help you with a well-designed participating whole life insurance policy that can help fund your children’s future and provide the best student loan consolidation options for them. Schedule a strategy session with us today to learn more about The Perpetual Wealth Code™ and how it can help you with your financial and family goals.

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