Student loans impact people of all ages, from high school through retirement. This may come as a surprise to some people, because it’s often thought that student loans are a millennial “issue”, but that’s not necessarily the case. In fact, many adults who are either planning on retirement or already in retirement are faced with student loan payments. This is for a variety of reasons - it may be as a result of them going back to school themselves later in their careers, it could be from paying for or contributing towards a child’s education, or it could even be from being a co-signer on a loan. According to Credible.com in 2019 of all people with student loans 4.2% of them were over the age of 62 and another 13% were between the ages of 50 and 61. This seems like a high percentage, considering that the average age of a college graduate is 25.4 years old.
If you are a parent, grandparent, or anyone who has a child going to college and you want to help fund their education there are some things you may want to consider.
If your child isn’t in college yet you could consider funding a college savings account. This will help reduce the amount of student loans that will need to be taken out when your student attends college. Some college savings vehicles that you could explore are a 529 plan, brokerage account, Roth IRA, custodial accounts (UGMA/UTMA), Coverdell ESA’s, or U.S. Savings Bonds. Before you decide which savings vehicle you want to use it’s important that you research each type of account and weigh the pros and cons. You may find that based on your individual situation one outweighs the other or you may find you want to fund multiple different accounts (which is what we usually recommend).
Make sure your child completes the FAFSA for each academic year they plan on attending school. FAFSA stands for Free Application For Student Aid. You want to complete this application even if you don’t think you’ll be eligible for financial aid. The reason for this is because if you don’t complete it your student won’t be eligible for federal student loans.
We generally recommend that student loan borrowers borrow federal student loans before private because they come with more benefits, but as with any of these decisions it depends on each individual situation.
Teach financial responsibility from an early age. While this consideration isn’t directly related to student loans it could help with student loan management later in your child’s life.
If your child is aware of money before going to college they may be more inclined to look at the cost of attendance and compare those costs to various schools. This could help reduce the amount of student loans your child needs to take on. This would then likely reduce the amount of student loan debt you have to co-sign on.
While in college your child might be more aware of how they are spending money. Many students borrow extra money to help cash flow general spending habits in college. This can cause a lot of excess debt upon graduation, which most of the time results in higher monthly student loan payments, unless they are eligible income based repayment, which may result in them paying back more debt in the long run.
After college if your child is financially responsible they are more inclined to spend within their means, which will help reduce the likelihood of their defaulting on their student loan payments.
Be careful of how many student loans you co-sign on and of whom you co-sign for.
If your student doesn’t make their payments, lenders will come after you, as the co-signer to get their money.
Did you know that the government can garnish up to 15% of your social security to pay defaulted student loans?
Know that it’s okay to not fully fund your child’s education. The decision on how much you want to pay towards your child’s education is completely up to each individual. There is no right or wrong amount to save.
Planning for college can be very overwhelming, especially when you don’t want to negatively impact your retirement savings. If you’re feeling overwhelmed with college planning decisions reach out to us and inquire about our college planning services.