Everyday Cheapskate: Parents – Stop Taking Parent Loans For Your Kids’ College | Hobbies
As a parent, you are responsible for taking care of your child, but you are also responsible for taking care of yourself.
Taking out loans so your child can go to their dream college can take a toll on your dreams of retirement.
Unlike the advice you’ll get from many financial aid officers, parents shouldn’t borrow money to pay for their children’s college education.
Locking your eyes with that first financial breakdown for your son or daughter’s first semester will be painful, even if they are attending public college. If you choose to pay some or all of the tuition, you will pay at least several thousand dollars a year. It is not cheap.
HOW PARENTS BORROW
Unfortunately, there are a number of ways that parents can sink their own financial ships by taking on debt for their children’s education. The most common is to take out student loans – Parent PLUS Loans. The problem with that? The Federal PLUS Loan Program allows parents to borrow far more than they can comfortably – or never – repay!
Some parents take out private student loans, usually in their own name, but often as a co-signer on a student loan. Either way, the parent is 100% responsible for the debt – something many parents don’t understand, even after sitting in a financial aid office and checking the box that certifies that they have read and fully understand the terms of what they have just agreed to.
Then there are parents who use 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 their education. The potential complications with this option are endless.
THE REAL COST
What parents don’t realize is the real cost they face when incurring 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 if the borrower has the income or the ability to repay the loans.
Parents who take out Parent PLUS loans have very few forgiveness options. These loans cannot be canceled under the Federal Student Loan Cancellation Program for Teachers, and for various technical reasons, parent borrowers will not get relief under the Loan Cancellation Program. of the public service.
If parents withdraw equity from their home by using an adjustable rate home equity line of credit, or HELOC, to pay for their children’s college education, they run the risk of losing their home through foreclosure if something goes wrong. not and makes them unable to keep up with the payments.
Parents should look for options that don’t involve going into debt for their children’s education – ways to get a college degree without debt. It’s called working, and I’m talking about your student. There are also grants and scholarships – money that does not need to be repaid.
Change school. Just because the fancy and expensive school accepted your brilliant offspring doesn’t mean you can afford it, let alone let your son go, the same way your son doesn’t get a Ferrari just because he passed his driving test on the first try. . Think, folks.
Match quality with needs and needs with the ability to pay.
If, after exhausting all options – working multiple jobs, living at home, starting at a community college, scholarships and grants – your student is still not able to cover the full cost of their studies and they have a need urgent borrowing that cannot be avoided, your student should be responsible for this debt, not you. And your student should stick with federal student loans, never private loans.
Your children can get help paying for their education, but no one will help you pay for your own future.
Going into debt to pay for your child’s education is not a gift.
The best gift you can give your children is the assurance that you will not become a financial burden on them in your old age.
This column was originally published in 2018. Mary invites you to visit it on EverydayCheapskate.com, where this column is archived with links and resources for all recommended products and services. Mary invites questions and comments at https://www.everydaycheapskate.com/contact/, “Ask Mary”. Tips can be submitted to tips.everydaycheapskate.com/. This column will answer questions of general interest, but letters cannot be answered individually. Mary Hunt is the founder of Everyday Cheapskate.com, a frugal lifestyle blog, and the author of the book “Debt-Proof of life.