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Currently, I'm working full time while studying to get my degree. I'm making monthly payments on my other debt, and looking to be completely debt free - with the exception of my student loans - within 12 months. However, it looks like I've pretty much exhausted my borrowing possibilities to pay for school. It's not like I need cash for class tomorrow, but within the next few months I need to work out other arrangements.

My question is, should I cease my 401(k) contributions and use that money to pay for school? That, combined with the amount I'm currently paying towards debt (which will be freed up within a year), will get me close enough that a part time job that even pays minimum wage would be enough to cover my costs. The problem is, I'm nervous about not having anything going into savings while I'm in school.

Is it a good tradeoff? Or should I take a few terms off to save up cash instead?

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To make this more general: should you save for retirement or for education? The answer is simple: save for your education first.

A PriceWaterhouseCoopers report on behalf Universities UK in 2006 and another by the Washington-based College Board in 2007 indicate that graduates of higher education can earn anywhere from $400,000 to $1 million more, after tax and education loans are paid, than do those who start work with only a high-school qualification.

[From my blog...]

Over your lifetime your higher education will earn you far more than any other income and investments you forego while attaining that education. Make those sacrifices now to reap greater rewards later.

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  • So true, you'd be daft not to follow this advise. Besides, you'll be fine as you are already aware of the need for saving.
    – GUI Junkie
    Mar 6 '11 at 19:04
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Not all education is considered equal. Can you tell us just a little bit about what kind of degree you are going for and where? The reason I ask is that there are many schools out there which are more interested in making a profit, and less interested in providing an education.

-Ralph Winters

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  • Absolutely agreed. I have a friend who got a 2 year degree from a for profit school where unfortunately supply for those in the degree'd program completely exceeds demand - he can't find a full time job no matter where he goes in the US.
    – CrimsonX
    Mar 10 '11 at 16:18
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As long as you have a emergency fund, I'd stop 401k contributions immediately and use that money to fund school (as much as you can). Student loans are dangerous - they're very difficult to discharge in a bankruptcy, and eat into your savings for a long time. It may even be better to defer school for a year while the debt gets paid off and you can get an emergency fund built up.

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If stopping the 401k contributions temporarily would get you out of debt faster and also stop you from having to take out more student loans, then stop the contributions right now.

You can always put some money into regular savings for emergencies etc - in fact, you should - but given a choice between deferring further contributions to your retirement and deferring the (hopeful) increase in income you get when you graduate, definitely choose the former. That of course also means that you don't take off a few semesters from studying to make money to put into a 401(k).

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  • If the rate on your loan payments is really really low and you have a rather large financial cushion, it might make sense to use student loan debt to finance a stock market investment. If it's not really really low, and if you don't have that cushion, it's a dubious proposition which significantly increases your risk exposure. Here, I'm guessing it's the latter.
    – user296
    Mar 5 '11 at 3:39
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    Me too, and I'd still rather pay off the student loan than effectively borrow to invest in the stock market. A friend's family lost their house over something like that so I personally shy away from that sort of risk. Mar 5 '11 at 16:12
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Does the 401(k) get any match? Whatever you do, don't lose the match. Without more detail, it's tough. Will you lose more sleep for the debt rising, or for the retire account not? It seems your debt is well managed, a year to zero? A student loan wouldn't scare me.

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  • I disagree - the match is a nice to have but the OP will survive OK without it. The whole post sounds to me like he has an income problem, given that he is considering to put his studies on hold to earn money, thus deferring the expected higher income he should get from a finished degree. Mar 5 '11 at 16:18
  • Yep, it's all about cash flow. I have enough to pay my bills, but I can't both fund my 401k (and get the employer match) AND pay for school. Mar 5 '11 at 21:57
  • I may have misread a bit, I was thinking he'd take a loan. For what it's worth, a loan to cover exact amount of matched 401(k) is a better choice than all else. Even if it means taking a 401(k) loan each year for that amount. Ben is a year from debt free, had he said there was card debt and other issues, I'd back off. Mar 6 '11 at 0:46

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