Don’t use emergency funds to pay tuition!

Broken piggy bank - shutterstock_13790782Q: Does it make sense to use some of our emer­gency fund for tuition? We’ve built up about half of our emer­gency fund, but it’s not like my hus­band is going to lose his job. He’s an offi­cer in the Navy and still has three more years of com­mitt­ment. I’m start­ing phar­macy school in the fall and already have around 8000.00 in school loans from my under­grad. I’m tempted to use our sav­ings to pay my tuition to avoid more school loans. It wouldn’t com­pletely wipe it out, and I’m hop­ing to qual­ify for some schol­ar­ships next year. This wouldn’t be a reg­u­lar occurrence.

–Ash­ley, California

A: I under­stand exactly where you are com­ing from. I’m not a fan of incur­ring debt either. With that said, I wouldn’t do it. I would keep the emer­gency fund intact.

Why? Using your emer­gency fund to pay for school would save you from incur­ring more school debt for sure. But, it would also open you up to incur­ring con­sumer debt.

It’s Not Just About Job Loss
Here is a per­sonal exam­ple to illus­trate the point.

I am pretty secure here in my posi­tion at USAA like your hus­band is with his posi­tion in the Navy. Even so, I still keep cash reserves just in case some­thing unex­pected comes up – like when the tire of my wife’s SUV blew out a while back. If I didn’t have cash in reserve, I would have had to put the $200 for new tire on a credit card. For­tu­nately, I was able to pay cash. While this is a small dol­lar exam­ple, it is not that hard to envi­sion pos­si­ble larger ones – appli­ance replace­ment, home repair, auto acci­dents, uncov­ered med­ical costs, etc.

I agree that school debt isn’t fun to have. But, credit card debt is much worse. It’s more expen­sive, it looks worse on your credit record, and it car­ries a much heav­ier psy­cho­log­i­cal weight than stu­dent loan debt.

For all of these rea­sons (and prob­a­bly a few more), I’d keep the cash intact.

Thanks so much for your ques­tion and good luck in school!


USAA or its affiliates do not provide tax advice. Taxpayers should seek advice based upon their own particular circumstances from an independent tax advisor. The information is provided for informational purposes only and is not intended to substitute for obtaining professional financial advice. Please thoroughly research and seek professional representation before acting on any information you may have found in this article. This article is in no way attempts to provide advice that relates all personal circumstances.

Examples given are hypothetical illustrations and not an indication of the benefits or features of any USAA product. You should seek policies and advice based upon your own particular circumstances. Sample loans are for illustration purposes only and are not a rate quote, pre-approval, or commitment to lend.

Scott Halliwell and JJ Montanaro are CERTIFIED FINANCIAL PLANNER™ practitioners with USAA Financial Planning Services, one of the USAA family of companies. Certified Financial Planner Board of Standards, Inc. owns the certification marks CFP® and Certified Financial Planner™ in the United States, which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

USAA Financial Planning Services® refers financial planning services and financial advice provided by USAA Financial Planning Services Insurance Agency, Inc. USAA Financial Planning Services Insurance Agency, Inc. (known as USAA Financial Insurance Company in California, Lic. #0E36312), a registered investment adviser and insurance agency and its wholly owned subsidiary, USAA Financial Advisors, Inc., a registered broker dealer. (known as USAA Financial Insurance Agency in California), a registered investment adviser and insurance agency and its wholly owned subsidiary, USAA Financial Advisors, Inc., a registered broker dealer.

USAA means United Services Automobile Association and its affiliates. Investments provided by USAA Investment Management Company and USAA Financial Advisors Inc., both registered broker dealers. Banking products provided by USAA Federal Savings Bank. Credit cards provided by USAA Savings Bank. Both Banks Member FDIC.