By Vincent R. Birardi, CFP®, AIF®, Wealth Advisor at Halbert Hargrove.
As parents, we often feel that it’s a foremost responsibility to assume any and all financial debts that our children incur. The thought of them suffering through financial misery is almost too much to bear.
Contrary to that impulse, it can be a good thing to allow your child to incur student debt. Investing in their own education will enhance their human capital – one’s lifetime earning capacity based on their skills and experience. It also increases the likelihood that they will take their studies seriously – with the knowledge that they have some financial responsibility at stake for their time and efforts.
Of course you can choose to help your child overcome their student debt if you are able and willing to do so.
Here are 5 ways to do just that:
- Making Small Payments During College
You can pay the educational institution directly on your child’s behalf in small increments along the way. The aim is to not assume the full debt but enough to show your support to your child.
Typically, student loans do not require repayment until after college graduation. However, both you and your child can choose to make loan payments before then. Even if you can contribute $50 a month toward the loan starting freshman year, that will add up to $2,400 of repaid debt over four calendar years. (Every little bit helps!)
- Making an Occasional Loan Payment as a Gift
Similarly, you can make direct payments to the institution servicing your child’s student loans once they’ve graduated.
While your child might have other items on their wish list, a payment toward their student loans for a birthday or other special occasion may be more helpful. Ask other family members if they are willing to do the same as well.
- Applying for a Private Parent Loan
If you don’t qualify for a federal loan for parents, you could take out a private loan to help fund your child’s education. Keep in mind that you will be the only borrower. This is very different than having your child named as the borrower and you named as the cosigner.
Parents who take out loans need to be careful they aren’t taking on more debt than they can sustain. Remember – you can borrow for education but you cannot borrow for your own retirement.
- Matching Your Child’s Payment
Another approach for paying off student loans may be to motivate your child to put more toward their loan by offering to match their payment dollar for dollar. Once loans are in repayment, you might also encourage them to pay more than the minimum amount due to pay off the loan faster. While not every parent will be able to help in this way, if you contribute what you can, it can help them feel like they’re not alone in facing what may seem like a formidable debt load.
- Helping with the Essentials
If you don’t have the money to put toward your child’s student loan, you can still help ease their financial burdens. Buying them groceries, inviting them over for dinner regularly – or even allowing them to live with you rent-free for a period while they tackle their debt can be a huge help.
It can be useful to make it clear that you will continue helping as long as your child has or is looking for a job. The goal isn’t to give them a free ride through life but instead provide the kinds of boosts they need to become financially independent.
How do you balance having the life you want to enjoy today with what you’re going to need in the future? Are you doing what it takes to enter your dream retirement? TAKE OUR QUIZ to find out.
Disclaimer:
Halbert Hargrove Global Advisors, LLC (“HH”) is an SEC registered investment adviser located in Long Beach, California. Registration does not imply a certain level of skill or training. Additional information about HH, including our registration status, fees, and services can be found at www.halberthargrove.com. This blog is provided for informational purposes only and should not be construed as personalized investment advice. It should not be construed as a solicitation to offer personal securities transactions or provide personalized investment advice. The information provided does not constitute any legal, tax or accounting advice. We recommend that you seek the advice of a qualified attorney and accountant. All opinions or views reflect the judgment of the author as of the publication date and are subject to change without notice.
