You’re a parent and you are responsible to take care of your child financially. But you are equally responsible to take care of yourself. Taking on student loans so that your child can enroll at the college of his or her dreams may sink your dreams of ever retiring.
Contrary to the advice you will get from many financial aid officers, you shouldn’t take out loans to pay for your children’s education, under any circumstance. Parents should not borrow money to pay for their kids’ college educations.
Locking eyeballs with the financial breakdown for your son or daughter’s first semester will be painful—even if he or she is attending a public college.
If you opt to pay for some or all of the cost of college via student loans, at the very least you’ll be paying several thousand dollars per year. It’s not cheap.
Ways Parents Borrow
There are any number of ways that parents can sink their own financial ships by taking on debt for their children’s education. The most common is for parents to take out student loans.
Parent PLUS Loans
These are loans that are taken out in the parent’s name(s) to be used for their child’s education. The problem with that? The federal PLUS loan program allows parents to borrow far more than they can comfortably—or ever—repay!
Private Student Loans
Some parents take out private student loans, usually in their own names but often as a cosigner on a student loan.
Either way, the parent is 100% responsible for the debt—something that many parents don’t understand, even after sitting in a financial aid officer’s office and checking the box that certifies they’ve read and fully understand the terms of what they’ve just agreed to.
Home Equity Loans
Then there are some parents who resort to taking out home equity loans to pay for their children’s education. Rather than having a student loan, these parents use the equity in their home to pay for college.
While that might sound like a great idea in the short term, it’s not. The potential complications here are myriad.
The Real Cost
What parents don’t realize is the true cost they bear when they take on student debt. Parent PLUS loans allow parents (and graduate students) to borrow up to the full cost of an education. Only a basic credit check—no underwriting—is used to determine whether the borrower has the income or ability to repay the loans.
Parents who take on Parent PLUS Loans have precious few forgiveness options. These loans cannot be forgiven under the Federal Teacher Student Loan Forgiveness Program, and for a variety of technical reasons, parent borrowers won’t get relief under the Public Service Loan Forgiveness Program. These loans cannot be bankrupted, either.
Parent PLUS Loans are not eligible for the income-contingent, or pay-as-you-earn repayment plans. The standard repayment requirement offers no flexibility. Your only option is to repay them as agreed.
If you think the U.S. government will ever forget your Parent PLUS debt obligations, think again. Between 2002 and 2015, the number of senior citizens having a sizable portion of their Social Security checks garnished to repay education debt soared from 6,000 to 67,300.
If parents strip the equity in their home using a variable rate Home Equity Line of Credit (HELOC)to pay for their children’s college education, they they run the risk of losing their home through foreclosure if anything goes wrong making them unable to keep up with payments.
There are better alternatives to parents borrowing for their children’s education. Parents and students need to look for ways to graduate college debt-free. It’s called working and I’m talking about your student here. And there are grants and scholarships—money that is not required to be repaid.
Perhaps it’s time to switch schools. The fact that the fancy expensive school accepted your brilliant progeny does not mean that you can afford it, let alone go there in the same way your son does not get a Ferrari just because he passed his driver test on the first try. Think, people. Match quality with need, and need with the ability to pay.
If after exhausting all options—working multiple jobs, living at home, starting out at community college, scholarships and grants—your student is still are unable to cover the full cost of going to school and there comes a dire need to borrow that cannot be avoided, the student should be responsible for that debt—not the parents. And that student should stick to Federal student loans—never private loans.
Your kids can get help paying for school, but there is nobody that will help you pay for your own future. Going into debt to pay for a child’s education is not some kind of gift.
The best gift you will ever give your kids is assurance that you will not become a financial burden to them in your old age. If you are not aggressively saving to fund your retirement, that is exactly what will happen. Not a pretty picture, is it?
Learn these two important words: hard work. You are younger, stronger and freer from obligation right now than you will ever be again in your life. You need to have skin in this game which means paying your own way. Step up! I am talking jobs, jobs and more jobs.
Work every holiday break, every summer and during every school year, too—as if your life depends on it. Take any and all jobs you can get.
Take responsibility for this amazing opportunity you have to get an education. Getting your degree will be the biggest thing you will have accomplished in your lifetime, to date. This is serious.
Stop whining and stop feeling entitled to have someone else pay your way.
You may never again be presented with the privilege you are facing now of being accepted into a college or university. This is a big deal. Don’t blow it.
Determine to take the scorched earth approach where no measure to cut costs is too frugal. Live at home if they’ll let you. Be grateful. Demonstrate your appreciation. Cook your own meals. Ride a bike, rent your textbooks.
If you must take on a minimum amount of student debt, there are a lot of future options if the student loan is in your name, including student loan forgiveness and various repayment plans that can lower payments. Do not ask anyone to co-sign a loan with you. That’s the easy way out. Don’t opt for easy. Opt for smart.
In Closing …
Let me close with the story of Debra Crow. As a single parent, she felt overwhelmed and guilty when her daughter headed off to college. There was no education account to draw from—no savings. Nothing.
In desperation fueled by guilt and shame, Debra took on $41,000 in Parent PLUS debt to help pay for her daughter’s education. Now that the debt has come due, she is struggling to make any payments—even the minimum payments are putting her behind every month. She’s looking at many years of struggle, pain and debt-repayment misery.
Debra’s daughter is working for a non-profit organization that would qualify for student loan forgiveness if only the debt were in her daughter’s name. Loan forgiveness does not apply to PLUS loans or private parent loans.
Debra is stuck. She has no way out but to repay that horrific amount of debt plus. To let the loans go into default only sets her up for garnished benefits once she reaches her full retirement age.
If Debra’s daughter had simply taken on the debt herself, she would have had more payment options and quite possibly forgiveness of most of that debt in exchange for her work with a qualified non-profit.