Dave Ramsey on saving money for college

Even if you don’t particularly care about college tuition costs, you have probably heard the news that prices have been skyrocketing over the last few years. Now with it being more difficult to get a student loan, it seems that more and more people are facing a challenge paying for college.

In the video below Dave Ramsey reiterates his position against using student loans as a means to pay for college and offers a few tips when saving money for college.

But college is an investment – right?

The thinking that I have always heard is that college is an investment, therefore you can justify taking a student loan. But what I agree with Dave on is that for some reason very few have stopped to ask “at what cost?”

Should it be considered “normal” to leave college with $20,000 or $100,000 in student loans?
Sure, it is a good investment for some people, but for others who can’t find a job in their field and end up moving into an unrelated career, it may not be that good of an investment. With more and more people wondering if a college degree is worth pursuing, the costs increasing, and student loans harder to come by it’s no wonder that some people are looking for jobs that don’t require a degree.

Saving money for college vs. retirement

I will say that I completely agree with Dave about this. His stance has always been to save first for retirement and if you have that covered then work on saving for the kids’ college. The simple point is that (worst case) you can take loans for college expenses at reasonable interest rates. While Visa and Mastercard are the only ones offering “Retirement Loans” at 25%. Thinking about it in those terms makes it pretty easy to decide.

Are you saving up for college expenses on the horizon? Are you planning on taking loans or paying cash?




















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11 Comments
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  1. Mike D.

    Ok, for the most part I’m a Dave fan, but this is one category I think he’s really missing an important point. Dave pushes local state public institutions a lot, but doesn’t mention that they often don’t have a lot of money to give to students. I personally went to a private school that gave me money to go there. The University of Maine (I’m from Maine) hardly gave me any money. It cost less out of pocket for me to go to a private college, even though the price was higher, just because they gave me a bunch of money. Don’t count out private schools people, apply to a bunch and see what you get back for financial aid. I’m afraid Dave might turn people away from applying for private schools just because they think it’s too expensive

  2. Unfortunately I went through college & grad school on a ton of student loans because (1) it was normal, (2) it was ‘good’ debt, and (3) signing loan papers for tens of thousands of dollars at a time made it seem like play money that wasn’t real.

    Well now I’m paying back my loans — and believe me, I don’t get to pay it back in monopoly money! It may be ‘normal’, but I plan on saving for my kids’ college so long as they learn the value of a buck along the way.

  3. We’ve told our son for several years now that he should keep his grades up, because he was going to have to pay for college with scholarships. He’s now in 11th grade and doing extremely well and actively searching for the right college for him. He took the ACT twice so that he could score higher for better scholarships…(made a 31!) Since we live on one income, it’s great to see him working hard to make sure he gets his college paid for, because we don’t want him in debt when he’s through with college, like so many of our generation did.

  4. i’m a big fan of “hedging” (planning for all different kinds of scenarios) when possible. i agree retirement comes first so, after God via tithing, the next 8-10% goes to retirement. i also believe in keeping $ available for other emergencies. outside of retirement accounts i plan to invest in a taxable investment account (that COULD be used for college, or not) and a 529 plan for each of my two children (ages 3 and 2) (that MUST be used for college/grad). i also intentionally plan for the 529 to only cover potential costs for a 4-year public school. the rest will have to be made up by scholarship and loans. my wife and i had different upbringings and she had to pay a lot for her own education, whereas my parents put it upon themselves to pay my college AND grad school. we are probably going to meet somewhere in the middle so that our kids have to either work or take loans for some (no full ride off us) but definitely not be left with $100k+ in debt from school alone. i’ve also toyed with the idea of telling my kids they are on their own to pay, but in secret save up for those costs and, as a graduation gift, pay it off for them. but i felt a little dishonest about that….what do you guys think?

  5. @Pochax –
    I like your idea of “hedging”, and I have to admit, the thought has crossed my mind about lying to my kids while saving up money and paying their school expenses off after graduation. But when I put myself in those shoes, I was glad my parents were up-front about their financial situation & the amounts they were able to contribute. I’d want the same done for my kids.

    Ultimately, knowing all the cards on the table would do the greatest service to your children. I’d hate to see my child make a life choice based on faulty financial information.

  6. One thing I was surprised to read in one of Dave’s books was that he feels 529 plans are not worth it, especially for people who have no state income tax. His point was that college costs are increasing at 7% a year so if you are buying future college credits at today’s prices you are only making 7% on your money when it could make more elsewhere (with the exception being in the current economy!!!) .
    I’m curious what other people think about that. I thought 529 plans were the best way to save for college from everything else I have heard.

  7. @Shan:
    The 529 you are talking about is the Prepaid Plan where you buy “credits” at today’s dollars towards future education. They are typically bought within your home state to be used at an in-state public school, but some can be transferred to private or out-of-state public schools (must check each plan separately). However, they are not accepted at all universities/schools so you need to be careful as it will reduce the available options for college. I don’t have the problem of making only “7%” annually (actually if you guarantee that, i would jump at the chance!), but my problem with the prepaid 529s are the limited # of schools you can use them at. i remember myself looking at colleges, and i didn’t want to be limited.

    I think most people use (and i would advocate as well) a 529 Savings Plan where it acts somewhat similar to a Roth IRA (after tax contribution grows tax-free) but can only be used for undergrad/grad education costs expenses. This can be used at ANY qualified school (not just in-state or the state administering your 529 plan).

    i refer you to http://www.savingforcollege.com for more information. Good luck.

  8. Honesty is always the best policy! Children are smarter than we give them credit for sometimes.

    529s are assessible for Expected Family Contributions, have exposure to the stock market losses, and expensive fees, hence not your best option.

    Hedging is an intelligent strategy. Save in a vehicle which will allow sufficient flexibility for college or retirement use and is not assessible.

    I strongly agree with Mike D. regarding private schools and their generosity. They should definitely be considered, contrary to Dave’s opinion.

  9. Leanne Miller

    Hi,
    my husband and I are 45 and professionaly poor. we have good professions, but have worked part time so we could either continue school or take care of our kids. we are now finally at a point where we can afford to save for retirement and for kids school. We only have about 35000.00 saved to this point and still have a mortgage and one car payment. We don’t want to put money in an educational fund that might not get used. why not put extra money in a retirement fund if it can be taken out for education use? what if our kids are so brilliant they get all scholarships, or what if they die? I am not suggesting taking from our planned retirement. I am suggesting adding to it instead of to something else. suggestions of other ways to do this?

  10. Yes, college is an investment. But even though it is an investment, It does not mean that you must be full of debts while in college. Start saving now for college.

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