As a parent, you are responsible for taking care of your child, but you are also responsible for taking care of yourself. Taking out loans so that your child can enroll in the college of her dreams may sink your dreams of ever retiring.
Contrary to the advice you will get from many financial aid officers, parents should not borrow money to pay for their kids' college educations.
Locking eyes with that first financial breakdown for your son or your daughter's first semester will be painful — even if he or she is attending a public college. If you opt to pay for some or all of the cost of college, at the very least you'll be paying several thousand dollars per year. It's not cheap.
WAYS PARENTS BORROW
Sadly, there are a number of ways that parents can sink their own financial ships by taking on debt for their children's education. The most common is taking out student loans — Parent PLUS Loans. The problem with that? The federal PLUS loan program allows parents to borrow far more than they can comfortably — or ever — repay!
Some parents take out private student loans, usually in their own names but often as a co-signer on a student loan. Either way, the parent is 100 percent responsible for the debt — something that many parents don't understand, even after sitting in a financial aid office and checking the box that certifies they've read and they fully understand the terms of what they've just agreed to.
Then there are some parents who resort to taking out home equity loans to pay for their children's education. Rather than having a student loan, these parents use the equity in their home to pay for college. The potential complications with this option are myriad.
THE REAL COST
What parents don't realize is the true cost they bear when they take on student debt. Parent PLUS loans allow parents (and graduate students) to borrow up to the full cost of an education. Only a basic credit check — no underwriting — is used to determine whether the borrower has the income or ability to repay the loans.
Parents who take on Parent PLUS Loans have precious few forgiveness options. These loans cannot be forgiven under the Federal Teacher Student Loan Forgiveness Program, and for a variety of technical reasons, parent borrowers won't get relief under the Public Service Loan Forgiveness Program.
If parents strip the equity in their home using a variable-rate home equity line of credit, or HELOC, to pay for their children's college education, they run the risk of losing their home through foreclosure if anything goes wrong and makes them unable to keep up with payments.
Parents need to look for options that don't involve going into debt for their children's education — ways to graduate college debt-free. It's called working, and I'm talking about your student. There are also grants and scholarships — money that does not need to be repaid.
Switch schools. The fact that the fancy expensive school accepted your brilliant progeny does not mean that you can afford it, let alone let your son go there, in the same way your son does not get a Ferrari just because he passed his driver test on the first try. Think, people. Match quality with need and need with the ability to pay.
If, after exhausting all options — working multiple jobs, living at home, starting out at community college, scholarships and grants — your student is still unable to cover the full cost of going to school and there comes a dire need to borrow that cannot be avoided, your student should be responsible for that debt — not you. And your student should stick to federal student loans — never private loans.
Your kids can get help paying for school, but there is nobody who will help you pay for your own future. Going into debt to pay for your child's education is not some kind of gift. The best gift you will ever give your kids is assurance that you will not become a financial burden to them in your old age.
Mary invites questions, comments and tips at [email protected], or c/o Everyday Cheapskate, 12340 Seal Beach Blvd., Suite B-416, Seal Beach, CA 90740. This column will answer questions of general interest, but letters cannot be answered individually. Mary Hunt is the founder of www.DebtProofLiving.com, a personal finance member website and the author of "Debt-Proof Living," released in 2014. To find out more about Mary and read her past columns, please visit the Creators Syndicate webpage at www.creators.com.