To help their children achieve their dreams, parents often finance their son or daughter's college education. And nowadays, it's common for parents to foot these bills while still owing their own student loans. That can equal a lot of debt for mom and dad to repay—especially as they near retirement, plan for another child to enroll, or save for a different financial goal.
If you find yourself in this position, don't panic. There's no magic or perfect way to balance these priorities and cover these costs. However, you can figure out the best solution for you and your family. Start by answering the following questions:
1. Can You Borrow Less?
If you're still repaying student loans from your college days, you know how long this debt can stick with you—and you might want your child to avoid a similar fate. To do this, be sure he or she explores all free aid sources before looking into student loans. Check out an online scholarship search engine, and speak with the college's financial aid office and high school's guidance counselor about scholarships your child may be eligible for.
If scholarships don't get the tuition balance down to zero, see if the school offers an interest-free tuition payment plan. (Be sure to ask about any other fees associated with this plan as well.) This option may be good for families that can't pay the full balance at once but know they can afford a specific amount per month.
Even if you can't cover the entire tuition with one of these plans, enrolling could still make sense. By covering a portion of your balance with this type of plan, instead of taking out loans, you could save a lot of interest over time. Finding extra money to contribute each month could be tough, but in the long run, it may cost you less than student loans.
2. Have You Had "The Talk"?
As a parent, you naturally want to help your child. However, try to avoid the stance that you'll simply do anything it takes to get them through school, including taking on massive loan amounts.
Once your child has received an award letter and the first semester bill, have an honest conversation about both of your abilities to pay the current bill, and/or the future loan payments. How much of the cost will be shouldered by your child and how much by you? Remember: your child will benefit from this investment, so be sure they're invested in it as well.
Parents will often take out loans, with the understanding that their child will repay them. Should you go this route, remember that the loan will be in your name—meaning you're the one actually responsible for repaying it. You'll want to factor that amount into how much you already owe, as well as how close you are to retirement. Will you be able to cover it all once you reach that milestone?
Sometimes, unfortunately, the math just doesn't work. In that case, steer the conversation toward attending a less expensive school, going to community college for 2 years, or taking a gap year to save money. This talk might be hard, but not as hard as paying loans back for another 30 years.
3. Do You Know Your Repayment Options?
If you decide to borrow, consider how you're going to repay all your loans. This will help ensure you avoid difficulties during repayment. The only federal loan for parents is with the Parent PLUS loan, which allows you to choose from standard, graduated, and extended repayment options.
Parent PLUS loans don't have an income-driven repayment option like other federal student loans do, but you can get around this by consolidating your Parent PLUS loans and applying for income-contingent repayment (ICR). Just be careful about consolidating these loans with those from your own education. If you combine them, your loans will become ineligible for income-based repayment (IBR) or Pay As You Earn, even if you previously qualified.
4. How Will You Handle Your Debt In Retirement?
Taking on all of your child's college education costs leading up to your retirement may not be the best financial decision. But if you choose to do so, staying on an income-driven repayment plan should keep your payments low in your golden years. Under these plans, your payments should reflect your limited income and be much lower than while you were working full time.
Of course, these plans can have their drawbacks, too—most notably, their length. Consolidation and income-contingent repayment can keep payments affordable, but they can also last as long as 25 or even 30 years. That leads to one final question: Do you really still want to make student loan payments when you're 80 or 90? Your likely answer is another good reason to keep the borrowing to a minimum.