Most parents dream of seeing their child head to college. Whether they’re a legacy student or are fulfilling the dreams you had to give up, watching the child you raised proudly get their diploma is an unparalleled experience.
Just the thought of it can send a rush of emotions sweeping over you, so it makes sense why you’d want to make this dream come true—for you and your child’s future.
For many parents, the desire to protect and secure your child’s future means preparing for this transition years in advance. That isn’t just referring to getting ready for an empty nest, but also arranging the finances to set them off on the path to success. The proof is in the numbers—parents owe almost $100 billion of outstanding student loans.
This astonishingly high number speaks to every parents’ ingrained sense of responsibility for helping secure their child’s future, but it may come at a cost. A Consumer Financial Protection Bureau report from a few years ago showed that the number of student loan borrowers aged 60 and above quadrupled within 10 years. Many of the borrowers—almost 68% of them—claimed the loans were to finance their child or grandchild’s education.
Instead of putting your retirement plans at risk, perhaps it’s time to hand over the baton to your child. Here are five reasons you should consider letting your child borrow for college on their own:
It’s a learning experience for them
Heading to college is a rite of passage for students, many of whom may have lived with their parents their entire lives and are now moving away. During this four-year adventure, learning isn’t just confined to the classroom but continues on in every aspect of college life.
There’s no denying that your child will come back a new, more responsible person after they’re done with college. And what could be better to teach them about the real world’s responsibilities than letting them learn about budgeting and finances first-hand?
Letting your child borrow to finance their education instead of doing it yourself allows them to learn the long-term consequences, pitfalls, and lessons that come with borrowing. It’ll help themmake important financial decisions that impact their future, serving as a great opportunity to learn and give them a head start into adult life. They might not learn as much if they know your financial backing is there to support them.
You don’t risk losing it all
If you’re borrowing federal Parent PLUS loans, you may have a host of advantages at your disposal during the repayment period. However, one misstep could cost you considerably.
Since you might not have a steady cash flow or accidentally miss a few payments, you run the risk of going into default. When you’ve entered this part of the loan repayment process, you could be opened to various hiccups that leave a lasting impact.
As a consequence of falling behind on loan payments and failing to repay the balance that immediately becomes due, you may be sued by the lender. This could result in a seizure of your tax refunds, garnishing your wages, or giving up your Social Security payments. On top of this, your credit score will take a considerable hit—something that can be detrimental when you’ve spent your life working toward a good credit score.
They’ve got more at stake
College is a responsibility, especially when you’re racking up thousands of dollars in debt to attend it. Getting caught up in the parties and slacking off on attending classes is easy, but it can cost your child a lot more in the long-run.
When you’re paying for your child’s college education, they may perceive it as just another educational institute they need to get through. However, allowing them to borrow for their own college education means there’s more at stake. Knowing their financial future hinges on how seriously they take their college education, your child will be more motivated to succeed.
Refinancing is always a viable choice for your child if they find their student loan payments difficult to manage. You can help them secure the best refinancing terms by working with ELFI Student Loan Refinancing experts who’ll guide them on ideal interest rates, short repayment terms, and how to obtain approval.
It helps them build good credit
Student loans don’t just accompany you during your years on campus, they may stay with you for decades to come. Loan borrowing and taking out credit affects your credit score—a depiction of your creditworthiness as a borrower—and can impact future loans as well.
Good credit scores enable you to apply for credit cards, enjoy lower interest rates, negotiate better loan terms, and get approval for future borrowing and renting. A great first step to establishing a solid credit score is letting your child take out private student loans. The payment history of their loan repayment will considerably add to their credit score and get them started off on the right foot.
You can still support them
Letting your child borrow for college doesn’t mean you’re taking away their support altogether. There are several ways you can help them achieve their dream without shouldering the burden on your own. One such way is by becoming a cosigner when they take out a private student loan. In fact, this is the most common way for helping someone attain their education—an AARP survey revealed that about 45% of people over 50 had cosigned a private student loan.
Since many students may not have strong credit scores—or any credit score at all—it makes them unreliable borrowers in the eyes of lenders. In such a situation, parents can act as cosigners who agree to repay the loan if the child is unable to.
This doesn’t always mean you’ll have to step in and pay off the loan, but it could help boost your child’s eligibility for a loan and enable them to get favorable loan terms.
Some final thoughts
As a parent, you can help your child fulfill their dream of attending college and undertaking their first major investment. Letting them take this responsibility head-on will empower them to take control of future hurdles that come along the way.
Just remember, you’ve raised your child into a responsible, sensible, and practical adult who’ll make the right decisions when they’re faced with them. Armed with knowledge, practical skills, and your unwavering support, they’re ready to go out and conquer the world!