Student loans are one of the worst nightmares for parents and students. As a parent, even if you have been diligent about saving money for your children since they were born, the soaring cost of tuition will leave you coming up short by the time they’re ready to enroll in college. According to a Market Watch report, “In the past decade, in-state tuition for public four-year schools rose 4.2% per year, much higher than inflation, and experts say the trend will likely continue.”
Once you know you’ll not be able to afford college, it begs the question — should I take a loan for my kid? Even though we all want the best of everything, including education, for our children, the answer may be — probably not.
Taking a student loan for your child may backfire big time and could turn into a student loan problem for you. As a parent, and a well-informed student back in my days, I would like to suggest to students as well as parents to research their options, knowledge, and read through the news and forum discussions on the subject. This will give you a good start on acquiring enough information to make a decision.
Here are five reasons why parents should reconsider taking a college loan for their child.
1. Student loans have high-interest rates. The main problem with student loans is that the interest rate is high. As a parent taking out a loan for your child, you will be 100 percent responsible for paying it off. While it will keep your child stress-free in college, you’ll be setting yourself up for a heap of trouble.
2. Using a Home Equity Line of Credit (HELOC) to pay for college puts your home at risk. Using HELOC for your child’s education is essentially borrowing in your name while also putting your home in jeopardy. Interest rates could skyrocket, or maybe your circumstances would change all of a sudden, leaving you destitute.
3. The cost of raising a child is already high. Parents are already carrying more of a financial burden than previous generations. According to CNN Money, raising a child born in 2013 to the age of 18 costs $245,000. Raising kids alone is enough of a major monetary responsibility, without adding risk to your own financial future, as well.
4. There are a lot of student financial schemes and programs. There is absolutely no shame in making your child apply for scholarships and grants. According to the Department of Education, the US Government awards approximately $150 billion in federal aid to assist students with the costs of college. And US Money News reports another $35 million is awarded every year by foundations, not for profits, civil groups, and private companies. This makes for a huge well of free funds available to your student if they are willing to put in the efforts required. This will make them realize the value of money and train them how to compete for such programs, as most of these programs are merit-based and require some criteria to qualify.
5. We can’t take out a loan for retirement. This might sound selfish, but how will it feel, when you’re working well into your 70s, just to pay for a couple of years of college education of your child, which they may or may not even use.
While we all desire the best for our children, we also have to consider that sheltering them well into their college days is not a sound decision. The better option is to support and encourage them in paying for their own college education, by helping them with grant and scholarship applications, work-study programs or part-time job-seeking, and other debt relief programs.
Contributed by Christine Rudolph: Christine is a passionate health and lifestyle blogger who loves to write about prevailing trends. For more updates, follow her on Twitter @RudolphBlogger.