National Application Center :: pay for college
The Federal PLUS Loan vs. Using 401K Funds
Real-Life Example
Let's say you had a 401K account of $100,000. If you keep that money in your 401K and it earns 12%, over three years your account would earn $40,492 in interest.
If you withdrew $20,000 for education expenses (at the start of the 3 year period), your interest over three years on the remaining $80,000 would be just $12,394--a difference of $28,098. Borrowing from your 401k will cost you $28,098 in lost interest, and that's not counting any interest payments on the loan.
A PLUS loan for $20,000 will incur interest charges of just over $10,000 for a 10 year repayment period at the maximum interest rate.