Should Parents Take Out Student Loans for Their Children?
Having trouble deciding whether it is right for you to take out student loans for your child? Having a parent take out the student loan comes with a different set of financial ramifications than the student taking out the loan themselves.
The effects on your finances may be unexpected, so it is also important to consider other options to pay for college.
Differences Between the Parent and the Student Taking Out the Loan
Parents and students will have different payback methods and ramifications for taking out student loans. When parents take out student loans, they will take out Parent PLUS loans to pay for their children’s education. The Parent PLUS loan can be more difficult to pay back and which offers fewer options for forgiveness. Parent PLUS loans do not have the option to pay back the loans based on income. Therefore, the only option is to repay the student loans on a fixed schedule, which can be more financially straining. Also, if parents take out the student loan, they will likely have to pay higher interest rates than their children.
Effects on the Parents’ Finances
Taking out student loans for your child may seem like the right move for your child, but it is important to consider the consequences that will fall on your finances before making a decision. As mentioned, there are fewer options for parents to pay back student loans. This can make it more difficult for them to pay the loan back than for their children to repay loans. Also, the loan will be attached to the parent’s name until they have paid it off. As a result, it can be difficult for them to qualify for other large purchases. For example, it will be more difficult for a parent to take out a mortgage while carrying student loan debt. It increases the parent’s total debt and can affect their debt-to-income ratio. These are major factors in determining eligibility and interest rate on a mortgage.
Other Options to Pay for College Besides Student Loans
A common option to pay for college without loans is to get a part-time job while in school. Students may be able to acquire a job that pays a significant amount. Many businesses are looking to employ younger workers. According to ProPublica, large technology companies have admitted to seeking out younger employees and placing ads where the younger demographic is most likely to see them.
In addition to getting a job, many colleges will offer financial aid programs. If you know that financing college will be difficult for you, it is important to research different financial aid programs offered by different colleges and which ones you qualify for. Picking a school based on whether you receive financial aid may be something to consider if avoiding student loans is important to you.
It is also wise to apply for scholarships whenever possible. Scholarships are offered based on a large number of criteria – not just academic or athletic prowess. Make sure when picking scholarships to apply for that you meet the requirements because they are often very competitive. Additionally, research whether scholarships you receive will impact the amount of financial aid you’ll receive.
College tuition continues to rise, meaning paying for college can be difficult. When determining the best method for you and your family, take into account the financial ramifications of each option. Student loans can be helpful in funding education but can also leave the student and parents in debt. Continuing other options or minimizing the amount of loans that the student and parents take out may be beneficial in the long run.
If you’re struggling to decide how to take out student loans, contact Leslie H. Tayne, Esq. and the student loan debt professionals at Tayne Law Group.