08 May What’s the best way to pay for college tuition?

Q. We are planning to start paying for college in August. We have saved some money in a 529 plan but it’s not enough to cover the whole cost. Should we use the 529 first, or save it for later payments? We would have to borrow the rest that we do not have saved up.
— Mom

A. Congrats to your child on getting into college.

Paying for it is always a big question.

In your case, because you will need to borrow, the key issue is which money is more expensive, said Bill Connington of Connington Wealth Management in Fairfield.

“In most cases, it makes financial sense to use the 529 plan first rather than saving it for later, he said.

Consider this.

A 529 plan grows tax-free if used for qualified education expenses, he said, and expected investment returns are typically 4 to 7%, and the funds grow tax free, he said.

Then there are student loans.

“Federal student loans — such as those offered through the U.S. Department of Education — currently have interest rates that are often: 5 to 8% or more, depending on loan type and year,” he said. “Interest starts accruing immediately on most loans, except subsidized loans.”

If your loan interest rate is higher than what your 529 is likely to earn, borrowing while leaving money invested is usually a losing trade, he said.

“In simple terms, if you borrow at 7% while your 529 earns 5%, you’re effectively losing 2% per year,” he said. “Having done the Parent Plus Loan approach at 8% interest, I think it is better to pay with the 529 funds now before borrowing for their education.”

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This story was originally published in May 2026. 

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.