Whose Loan is it Anyway?
It is a natural parental instinct, for some more than others, to baby your child well into adulthood. Psychologists could get into elaborate discussions about why this is good or (more likely) bad, but for now we are going to look at the reasons why one manifestation of this parental instinct is very, very bad. Here are three quick reasons why parents should not take out loans for their children’s college education, let alone pay them off, because whose loan is it anyway, theirs, not yours!
Timeline
Your children have one big advantage on their side: time. Following college, you may fear that they’ll be buried in student debt for a while, but they (unlike you) have a longer time period to pay these loans back. You, on the other hand, will be needing that money for retirement much sooner and there will be no way for you to take out loans for retirement. This point can’t be stressed enough: you’ll need a lot more money for retirement than you’re probably planning to have. So, save for it and don’t pull from those savings if it can be helped at all.
The Loans Themselves
You can take out loans for your children’s education in a couple different ways, but the most common vehicle is a federal loan called PLUS–parent loan for undergraduate students. Another option is to take out a private loan, which includes loans from banks or other non-governmental sources. Private loans will, of course, come with higher costs and federal loans will come with less options for repayment and forgiveness. As a parent with retirement on the horizon, you will suffer the most from these options. If your children take out the loans themselves, on the other hand, they will qualify for certain programs that can alleviate the stress of these payments.
Alternatives
Let’s consider the positives for once in this blog post: your child does not necessarily need to be buried in debt after college ends. Some ways they can try to manage student debt better is by taking advantage of grants, working during college, and taking as many college courses during high school as possible. You will play a huge role in their success by nudging them in these directions while it’s still early. Also, since in most cases the first two years of college involve general education related curriculum, encourage your children to attend community college to get those requirements out of the way. This will allow them the ability to receive the same education at a much more reduced cost.
The FC360 Advantage
Being a great parent means successfully helping your children help themselves. If you can do that while taking care of your own financial well-being, you’ll ensure the happiness of your whole family. At FC360, we’re committed to helping you achieve your financial goals faster. That’s why we’ve eliminated all percentage-based fees and have automated our investing service to cut costs to our clients. For minors we have three account options:
- a Custodial Account: a standard investing account
- a Minor IRA: allows teens under 18 to open a retirement account if they have earned income
- a free 529 account: an educational savings account which can be opened with FC360 at no cost.
Learn more and to speak with an advisor today.