On this page
- 01Where the money should come from, and in what order
- 02"We can pay for it" is not the same as "we can afford it"
- 03One goal should not be made to work by quietly damaging another
- 04What actually happens when the admission letter arrives
- 05An education loan is not guaranteed future funding
- 06The decision is not simply interest rate versus expected return
- 07What a good funding decision looks like
Where the money should come from, and in what order
Most families arrive at the loan question the same way. The education is now real — an admission, a fee schedule, a date — and the money set aside for it does not cover the full amount. What follows is usually a scramble, made under time pressure, in an emotionally charged moment. It helps enormously to have thought about the order beforehand.
The order itself is not complicated. Money deliberately built for this goal is used first, because that is what it was for. Where it falls short, income at the time can bridge part of the gap — but only to the extent that paying fees out of monthly cash flow does not stop other commitments from being met or force the household to stop investing for everything else. Beyond that, the family is choosing between two things that both have a cost: using assets that are currently doing another job, or borrowing. That is the actual decision, and it deserves to be made deliberately rather than by whichever option feels least uncomfortable at the counter.
The funding sequence
Where education money comes from, and what each source costs
The education expense arrives
1The money built for this goal
Available up to whatever the education corpus has actually reached.
Nothing. This is what it was for, and it was funded deliberately.
2Current income at the time
Where fees can be met from cash flow without stopping other commitments.
Manageable if genuine spare capacity exists. Damaging if it quietly halts investing for everything else.
3Assets doing another job
Retirement savings, emergency liquidity, another goal's corpus.
The education is funded and a second shortfall is created — usually where there is least time to rebuild.
4An education loan
Where a genuine gap remains, and subject to approval and terms at the time.
A certain, contractual cost, and a repayment burden on the parents or the graduate.
The actual comparison
Not “loan or no loan”, but: what would borrowing cost us, against what using those other assets would cost the goals they were serving?
The order is a starting sequence, not a rule. Where drawing on other assets would materially damage retirement or essential liquidity, borrowing can be the better decision.
The distinction that matters
"We can pay for it" is not the same as "we can afford it"
Take a family whose child has secured a place on a programme costing more than the education corpus they built. On paper, the money exists. They hold retirement investments accumulated over two decades, a healthy emergency reserve, and a portfolio earmarked for a second child's education a few years later. Technically, they can write the cheque today.
But look at what each source would cost them. Drawing from retirement savings takes money out of the goal with the longest runway and, crucially, the one with no later chance to rebuild — there is no equivalent of "we will earn more next year" once earning years end. Emptying the emergency reserve leaves the household exposed at exactly the moment its outflows have increased. Using the second child's corpus does not solve the funding problem; it moves it, and shortens the time available to solve it again.
"We can pay for it" and "we can afford to pay for it from these assets" are not always the same thing.
Once the question is framed this way, an education loan stops being a failure of planning and becomes one option among several, each with a consequence attached. Sometimes it is clearly the worse option. Sometimes it is clearly the better one. It depends entirely on what the alternative would cost the household.
One goal should not be made to work by quietly damaging another
The failure mode worth naming is not borrowing. It is funding an education successfully while silently creating a shortfall somewhere the family will only discover much later — usually in retirement, usually with too little time left to respond.
One financial goal should not be made successful by quietly destroying another.
This is not a ranking rule. Retirement does not automatically outrank a child's education in every household, and it would be dishonest to pretend otherwise. A family with a substantial pension, a paid-off home and modest retirement needs is in a very different position from one whose entire retirement rests on the same investments now being considered for fees. Which goal gives way, and by how much, is a household-specific judgement — the kind worked through when several important goals are competing for the same money. What is not household-specific is the requirement to make that trade-off knowingly rather than by default.
What we observe
What actually happens when the admission letter arrives
In our experience of working with families through this moment, when a child has secured a meaningful education opportunity and the dedicated corpus is not enough, parents look at every practical source of money available to them. Savings. Gold. Cutting household spending. Borrowing informally from family. Redeeming investments meant for other purposes. Formal education loans. Often several of these at once.
We say that as an observation from our own work, not as a market statistic. And it is not a criticism. It is what love and urgency look like when they meet a deadline. But it does explain something important about why planning early matters more than the compounding argument usually given for it. Once the opportunity is real, the decision stops being financial and becomes emotional, and every option that requires time — contributing more, letting the corpus grow, revisiting the pathway — has already expired.
Planning early does more than reduce the chance that you will need a loan. It preserves choices before the education decision becomes urgent.
If you are reading this well before the expense, the more valuable page for you right now is probably what to do when the numbers do not yet work, because most of those levers are still open.
An education loan is not guaranteed future funding
It is tempting to treat borrowing as a reliable backstop — a reason not to worry too much about the gap today. That is a risk in itself, because a loan is an approval, not an entitlement.
Whether a loan is available, on what terms, and for how much can depend on factors such as the borrower and co-borrower profile, documented income, the institution and course, the size of the loan, the individual lender's policy, whether security or collateral is required, and the rules applying at the time. Households whose income is real but harder to document on a lender's forms can find this more difficult than they expect. None of that is predictable years in advance, and none of it is within your control.
Rules on eligibility, security, tax treatment and any interest subsidy schemes also change. If you are close to this decision, verify the current position with the specific lender and against current official rules rather than relying on what was true when an article was written — including this one. What we can say without qualification is this: a plan whose success depends on a loan being approved on favourable terms in eight years' time is not a plan.
The decision is not simply interest rate versus expected return
A common shortcut is to compare the loan's interest rate with the return you expect from the investments you would otherwise liquidate, and borrow if the expected return is higher. It is a tidy comparison and an incomplete one.
The interest cost is certain and contractual. The investment return is neither. Beyond that, several things the comparison ignores usually matter more: whether the household can comfortably service the repayment alongside its existing commitments; what liquidity remains if something goes wrong during the course; whether the repayment sits with the parents at exactly the point they should be accelerating retirement contributions, or with a graduate at the start of their career; what selling the alternative assets would actually cost, including the goal those assets were serving; and whether the loan will be available at all.
There is no universal threshold that says borrow above this amount and liquidate below it. There is only the comparison, made properly, for your household.
What a good funding decision looks like
Work through it in the order the money should be used, and be honest at each step about what the next step costs. Use what was built for the goal. Bridge with income where income can genuinely absorb it. Then, before touching other assets, ask what those assets were for and what would be left undone if they were spent here. Only against that answer does the borrowing decision become clear.
The best education-funding decision is not necessarily the one that avoids debt. It is the one that funds the education without unnecessarily weakening the rest of the family's financial future.
If the requirement is still some years away, the more useful work now is closing the gap while the levers still exist — start with whether the goal is genuinely affordable, and with the wider set of education decisions. If the expense is approaching, when each part of the money is actually needed matters more than any funding comparison. And where the choice genuinely turns on your household's specific circumstances — which it usually does — that is a conversation to have with an Investment Manager rather than a decision to make alone under deadline.