Recently proposed legislation would allow people to use their 401(k) accounts to reduce college debt. But using your 401(k) savings to pay down debt incurred for past education may be a cure that’s worse than the disease. Harbor Crest Wealth Advisors founder and CEO Mike Hennessy spoke with Forbes about why this is a bad idea and how it leaves Americans even less prepared for retirement.
“Increasing the availability of funds to pay for college can only serve to artificially boost demand and thus the price of college, which is already sky-high,” Hennessy said.
Using your 401(k) to pay down college debt hurts you in multiple ways. You’re giving up all the wealth you’ve worked so hard to accumulate, and will be starting over without the benefit of time that you had in your 20s.
The cost might alarm you. “Taking $10,000 and earning 5% annualized for 25 years gives you $33,864 dollars in the future,” Hennessy said. “If that $10,000 is gone today to pay for loans, you lost all that growth to fund your future you.” By encouraging retirement savers to pay down their college debt with their 401(k) assets, society as a whole will be faced with the “you can pay me now or you can pay me later” dilemma.
Read more in the 2019 Forbes article, "The Unexpected Dangers Of Paying Off Student Loans With Your 401(k) Savings," here.
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