It’s January, which means a new school semester is upon us. For parents of college students that means dealing with many things and, in particular, student loans. Student loan debt is a growing problem in our society, but one area that’s easy to overlook is its impact on parents. Student loans can uniquely impact parents in certain ways. It pays to enter the maze of student loans with an informed mindset so you can protect both you and your child. Here are five things every parent needs to know about student loans.
#1 – Get Your FAFSA in On Time
The Free Application For Federal Student Aid (FAFSA) is the lifeblood to securing federal student loan money, as well as grant and work-study money from universities. The FAFSA is due by June 30 each year, for the following school year. However, if you have a correction or update, you have until September 9 to turn in the paperwork.
It’s vital to turn the form in promptly to get the most federal funds possible. Federal loans are more desirable than private loans as they offer more protection if your child were to ever need forgiveness or discharge of the loans.
It’s also important to know that state and university deadlines may vary for when they need paperwork, so make sure to know those as you consider your need.
It’s Ok to Go Cheap
It’s common to equate cost with value, especially when it comes to providing for our children. That may not necessarily be the case when it comes to the college decision. This can directly impact the amount of student loans your child needs.
One simple way to cut down on cost is to consider options besides pricey schools, such as attending a community college for the first two years or matriculating at a lower cost in-state school. “The schools that students apply to should be a good match in terms of academics, budget and culture. Don’t disregard that middle element. Find the net price calculator when researching your schools to get an idea of what each place might cost you. Think about your student’s ability to handle debt and his or her motivation to get a job upon graduation that will pay off the loans,” says Erin Goodnow, Founder and CEO of Going Ivy.
As you help your child think through college and loan decisions, make sure you’re both on the same page. Doing so will help ensure a decision both parties are comfortable pursuing.
Think Again About Co-Signing
Depending on the cost of tuition or the amount of awarded student loan money, your child may need to consider a private loan. Being a private loan, the lender may require you to co-sign the loan.
In short, this means you’re on the hook if your child fails to pay back the loan. This presents significant risks to you as the parent. “There are obvious risks to cosigning a loan (of any kind). The first being that if the person you are cosigning for does not repay, the cosigner is responsible. It also counts as a debt against the cosigner which could affect credit score and that person’s ability to access other types of credit,” says Amy Thompson, Director of Financial Aid for St. Joseph’s College. It’s understandable that you want to help your child, but don’t be quick to co-sign on private loans without first considering your needs and the options available to your child.
Your Retirement Takes Priority
Helping your child is a natural and loving desire. It’s understandable to put your child first, but when it comes to student loans, it’s unwise to put them before your own retirement planning needs.
Recent reports show a different story for many parents. The average parent who takes on student loans for a child now carries over $21,000 in debt, according to the University of Southern California. That number jumps to $30,000 for high-income parents. Taking on these levels of debt can have a direct impact on retirement planning, not to mention the possibility of delaying retirement.
Helping your children is great, but there are no loans for retirement. Make sure not to sabotage your desire to help your children by forsaking your own future.
Don’t Overlook Having Your Children Help Out
Don’t be afraid to ask your children to help out with the college funding decision. It may feel unloving, but it may actually help them think through their options more seriously as well as help them take their own financial life seriously.
This can range from working while in school and paying towards the loan balance to looking for other opportunities to keep costs lower.”…Research shows that students who work during school through either work study or another job are more likely to graduate on time, so the debt can be a great motivator,” says Goodnow, pointing to the benefit of children working while in college.
Debt can be a great motivator and, as Goodnow points out, you might even be able to help out some with repayment when they graduate. Just make sure you’re on the same page as you consider your options.
There are a lot of things to keep in mind when considering the student loan decision. Work together with your child to put both of you in the best situation possible.