Saving money on stop taking parent loans does not have to be complicated. We rounded up the essentials so you can spend less and skip the guesswork.
Key Takeaways
- You’re a parent and are responsible for financially taking care of your minor child.
- But you are equally responsible for taking care of yourself. Taking on student loans so your child can enroll at the college of his or...
- Contrary to the advice you will get from many college and university financial aid officers, you shouldn’t take out loans to pay for your ch...
You’re a parent and are responsible for financially taking care of your minor child. But you are equally responsible for taking care of yourself. Taking on student loans so your child can enroll at the college of his or her dreams may sink your dreams of retiring. Or worse.
Contrary to the advice you will get from numerous college and university 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 affordable.
Ways Parents Borrow
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 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, typically in their own names but more frequently as a cosigner on a student loan.
Either way, the parent is 100% responsible for the debt, something that numerous 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 excellent idea in the short term, it’s not. The potential complications are myriad. Over the years, I have received more than a few letters from devastated parents who exchanged their homes’ equities for college debt. And then life happened. Kids dropped out of school; parents faced unemployment, health issues, divorce. You get the picture. They couldn’t keep up with the mortgage plus big HEL obligations. Foreclosure ensues, they’re out on the street and their lives are devastated.
The Real Cost
Parents don’t realize 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, if any, forgiveness options. These loans cannot be forgiven under the Federal Teacher Student Loan Forgiveness Program. For various technical reasons, parent borrowers won’t get relief under the Public Service Loan Forgiveness Program based on their students’ qualifying for forgiveness. These loans cannot be bankrupted, either. The only sure forgiveness comes upon the death of the signer.
Parent PLUS Loans are not eligible for the student’s income-contingent or pay-as-you-earn repayment plans. The standard repayment requirement offers little if any flexibility.
If you think the U.S. government will ever forget your Parent PLUS debt obligations, think again. Until you die, your only option is to repay them as agreed.
Worse
CBS News reports that 3 million Americans over 60 still have student debt. And the Wall Street Journal reports that in 2017, those seniors’ average education debt was $33,800, up 44% from 2010. More than 40,000 people over 65 are having their Social Security payments, tax refunds, or other government payments garnished because they aren’t paying their student loans. That number has more than tripled in the last decade.
Even worse
If parents strip the equity in their home using a Home Equity Loan (HEL) to pay for their children’s college education, they risk losing their home through foreclosure if anything goes wrong, making them unable to keep up with payments. Yes, this happens more frequently than we even want to think about.
Better Alternatives
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 driving 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.
How to Pay as You Go
Save early
Paying for college with money saved and invested is the cheapest way to go because a excellent deal of the money you send to the college will come from interest, dividends, and capital gains. But you have to start early to get those benefits.
Use current income
Spending current income, either the parents’, the student’s, or a combination of both, is a more costly way to pay as you go. This will require a change in lifestyle and considerable sacrifice. But when you’re finished, you’re finished. The education will be paid for in full. Achieving that goal is definitely worth the sacrifices required.
Work for the school
Numerous private colleges give an excellent discount to the children of college employees. There are lots of jobs on a big campus other than teaching positions. Check it out. You never know what you might find. Several colleges I know of offer free tuition to the family members of school employees.
Seek out discounts for pastors and missionaries
Numerous church-affiliated colleges and universities offer significant discounts to the children of pastors and missionaries. If you fall into one of those categories (or feel a change of profession coming on), make inquiries.
Apply for grants
A grant is a flat-out gift. It is free money, and there is no requirement to repay. The most common is the Pell Grant, money from the federal government to assist low-income undergraduates. But don’t get too excited. The grant will be small, at best, and will be determined by the family income. It could be as little as $200 or as much as $2,500.
If the student is a displaced homemaker (a woman who has left the workplace to rear children and is single as a result of either divorce or death and requires training to return to the workplace) or a dislocated worker (anyone fired or laid off due to downsizing or a self-employed person whose business failed because of a turn in the economy), that grant applicant will receive preferential treatment.
The Federal Supplemental Educational Opportunity Grant (FSEOG) is available for very low-income undergraduate students and ranges from $200 to $4,000 per year. Numerous states have grant programs for students who go to state colleges or universities. In addition, numerous colleges have their own grants based on need.
Take part in a work-study program
A federal program, work-study provides on-campus jobs for students. The college administers the jobs and supervises the workers. Once the student is granted an award, he must work until that award is earned. There is no requirement to pay the money back, even if the student does not graduate.
Look for corporate benefits
Numerous large corporations have an education reimbursement program for employees who qualify. This can be an excellent way for a student to get plenty of their college costs paid for. Those seeking graduate degrees might consider a job change to a corporation with such a program before enrolling in graduate school.
Serve in the military
For those young people wishing to serve in the military, an excellent education could be a decided benefit. The military will put you through medical school, for instance, if you enter as an o+cer and agree to stay for a period of time upon completing your residency.
Apply for no-need scholarships
There are jillions of scholarships available that are not based on need but rather on ability or one’s ethnic heritage, numerous of which go unawarded every year. You can find exhaustive lists online at sites such as Fastweb.com.
Apply for financial aid
Financial aid is a term the educational system uses to refer to grants, loans, work-study, and scholarships. Even if you desire to pay cash rather than accept loans, you might want to go through the financial aid process to learn if you might be eligible for grants or other aid. You need to apply for financial aid at least one year in advance. I suggest that you take a couple of aspirin before getting started, and you will do yourself a big favor if you eliminate all expectations. Learn more at Fafsa.ed.gov.
A friend, Carol Anne, had a rude awakening while going through this financial aid process when her daughter enrolled at a large, private university. She went through the long and arduous process and discovered to her surprise, that her daughter was eligible for aid for all but $5,000 of her first year’s costs.
Her daughter, a brilliant and highly motivated journalism student, decided to go after every possible scholarship to make up the $5,000 gap. Sure enough, she was selected as the national champion for a journalism scholarship to the college of her choice in the amount of, you guessed it, $5,000.
How shocked they were to be informed by the college that her financial aid would be reduced dollar for dollar by any scholarship she won outside. The college said it wasn’t their fault. They are required to adhere to federal regulations that require all sources of income to be taken into consideration. They saw the scholarship as a new source of income.
If You Must Take Out a Student Loan
In the same way that most people would never be able to purchase a home without a mortgage, most people cannot afford a college degree without some financial aid in the form of student loans. I wish that were not the case, but it has become a fact of life.
That being said, here are guidelines to follow to ensure student debt doesn’t become a much larger problem for your future than if you had not gone to school in the first place.
Only the amount you absolutely must have to get by
It will be tempting to borrow the full amount you are eligible for. But that could be more than necessary. Be strong. Say thanks but no thanks. Do not accept more than you need, so you can do any number of very foolish things with borrowe
Final Thoughts
Before you check out, double-check stop taking parent loans against current offers and any coupons you can stack. Small habits like this add up to real savings over a year.
Originally published at everydaycheapskate.com.
