College financing plan

Hello all! New to this forum, but I have a question that I hope to get some insight on.


I have an 18 year old who is going off to college in the fall. Due to what she wants to study and her future plans to go into the military, she is going out of state and cannot take advantage of her in-state scholarship money. Due to our household income she didn’t qualify for much financial aid and we are left with two options at this time; unsubsidized loans or paying out of pocket as we go. The one saving grace is that she has elected to join ROTC as a Collegiate Program member (i.e. no scholarship, rather like a ‘walk on’). This participation at least affords her the benefit of paying in-state tuition, which is a significant savings. She will be eligible for a scholarship that will cover either tuition and fees, or room and board after this year, but that is no guarantee. So here is my plan, and you all tell me if I am completely off track. It looks like her total expenses for the 2024-25 school year will be about $25K. I was planning on her taking an unsubsidized loan for this amount at 4.75%, where we pay the interest (about $100 a month) while she is in school, and then regular payments start once she has graduated (or drops below full time). I can start accessing my retirement money without penalty in 2028 (her graduation year), so worst case scenario I would pull the total (again in the worst case that would be about $100K for all 4 years) out of the retirement account and pay off all the loans (current IRA balance of $1.1M). By her senior year we would be paying about $500 a month to cover the interest on the unsubsidized loans, but that is also assuming we get comparable terms over the 4 years, and she does not get the ROTC scholarship (or other scholarships she would be eligible for) after the first year. Best case is that we are only floating the $25K loan and she covers the majority of her expenses through ROTC and/or other scholarships. In that case I can probably cover that first $25K loan with my annual bonus, but given that the market performs at an average of 8%-10% (I’m invested in mostly S&P Funds and have a chunk in an actively managed IRA with a financial advisor), I’d rather put that money into my retirement accounts, float the 4.75% loan paying only the interest, and let that bonus money earn in the market for 4 years. I figure I come out 3%-6% ahead.
So to summarize, Unsubsidized loans for college of about $100K, currently 4.75% which doesn’t come fully due until Spring of 2028. My plan is to pull that money as a lumpsum out of my retirement savings which I will be able to access in 2028. Is this a bad idea, and if so what are the options seeing as we are past the window of a 529?
Thanks to all in advance for responses or suggestions.


This may be a dumb question, but if she’s planning to go into the military, why not do that first so that the military pays for college (either through the GI bill or if she’s entering an in-demand field, directly and with a stipend)? I know quite a few people who paid for law and med school with a commitment post-graduation, but perhaps that’s not an option for her degree.

I question whether it makes financial sense to spend $100k and four years on a degree if she’s going into the military. Perhaps you’ve also considered that.

The last thing I would do is pay off my kid’s student loan with my retirement account. If she can’t make the payments with her post-grad salary, the degree isn’t worth it.

Thanks for your views. First off, she wants to be an aerospace engineer. A certified engineer in any discipline requires a 4-year degree from an accredited university in order to sit for the licencing test. Given what licenced engineers make even in their first year out of school, an undergraduate degree is a pretty good investment. I agree that in some cases a college degree is not a good use of funds, but engineering or other STEM disciplines require it for the most part.
Secondly, her intended path in the military is as an aviator, which is unlikely coming from enlisted ranks. She needs to go in with a commission to even be considered for an aviator slot, so college is necessary before military service. She has been accepted to the Naval ROTC program, so the $100K amount is a worst - case estimate if she does not secure a contract from the ROTC or decides against the military path.
Lastly, as I currently have over $1M in retirement accounts and am not ready to retire any time soon so those funds would continue to grow over the next 10-12 years, I don’t feel it would be a huge financial burden if I were to use a portion of those funds to pay for my daughters education. Unless something goes dreadfully wrong, she would inherit much more than $100k from me when I pass. Better to put it to good use when it’s needed.

OK, that sounds reasonable. Licensing isn’t required for most non-civil engineers, but in any event, she still needs the degree, and joining the Navy as enlisted isn’t going to work.

If she doesn’t end up going into the military, she should have no trouble making the student loan payments from her salary. There’s actually a good life lesson in doing that, especially since her peers will likely be doing the same thing. Being the only one with extra spending cash because her parents paid off her loans for her may not be the best thing for her. But you know her, and I don’t.

If you are keen to pay off her loans, and you expect to make more in the market than the interest rate on the loans, you can always make the monthly loan payment, rather than paying it off as a lump sum. I suspect you’d come out ahead, especially if you count the tax deduction for the interest (if she qualifies).

Consider using a retirement calculator to make sure that you will have adequate retirement savings even if you withdraw $100,000 for your child’s education. I would imagine that your daughter has considered part time work to help defray the cost

That is a risky assumption. The S&P 500 lost approximately 50% of its s value over a 17 month period from 2007 to 2009 and it took over 5 years for the S&P 500 recover to the 2017 level. Zero percent return for a 5 year period.

Consider putting any money that might be used for repayment of the college expenses into a CD, online bank Money Market Account or a financial institution Money Market Fund.