Thinking about college isn’t just a source of stress for students as parents often face serious anxiety about whether they can help their child fund their degrees and get a solid head start to their adult lives. You may feel guilty if you weren’t able to save enough to pay for your child’s college, and you might even still be paying off your own debt. First of all, there is no obligation to be entirely responsible for your child’s educational costs.
While it would be wonderful to be able to help them start their careers debt-free, borrowing loans and navigating student debt in college can help them become more responsible. Money management isn’t something anyone naturally acquires as it comes through real-world experience, and student loans are typically the first major expense young adults face. As their parent, you can help them get a head start on developing financial accountability by exploring student loan options together.
Federal vs. Private Student Loans
A federal loan is funded by the federal government while private loans come from banks and other private lending institutions. A Parent Loan, unlike personal loans, are borrowed by a parent on behalf of their undergraduate or graduate student. Your credit history and debt-to-income ratio are considered, and since an established adult will have greater history and assets than a student, they are able to be qualified for a higher principal amount. If you borrow as a parent, the debt belongs to you, but a private student loan is in your child’s name. As a cosigner, you are only obligated to repay the debt if your child fails to do so. Essentially, you are vouching that they are reliable and can be trusted by the lender to repay their debt on time.
Weighing the Options
If you want to pay for your child’s college education but can’t afford it out of pocket, then a parent loan allows you to do so. This leaves no financial burden on your child, so it functions the same as if you were paying with your own income. Cosigning, on the other hand, leaves your child responsible for their own debt. The benefit of cosigning is giving them a higher amount than they would likely be approved for on their own. Debt on private loans is often tax deductible, so you may also want to consider this as you factor potential payments into your budget. This is a good example of why taking on a loan may be profitable to you. Loans with both variable and fixed interest rates are available, and additional discounts may help you strike the perfect balance between your investment and income.
Should My Child Be Involved?
Absolutely. Even if you are borrowing on their behalf, you should discuss the cost of tuition and education with your child. They should be appreciative of the investment you’re making in their future, and you may want to establish certain rules for them to follow if you are to pay for their degree in full. For example, you may set a requirement for them to maintain a certain GPA. If you are fronting all of their educational expenses, they need other ways to stay accountable and develop self-discipline while they’re in college.
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