Parents With Their Own Student Loans
By Joe Messinger, CFP®
May 29, 2018
Recently, we talked with a divorced mom who put herself through college and now has student loans of her own. Suddenly, she is paying for her own debt, and she is faced with paying for her kids’ college at the same time. In today’s world of high student loan debt, parents are still paying off their OWN student loan balances and find themselves trying to save and pay for the college costs for their children! With budgets already stretched thin, where can we find the money to do this?
We would never advise a parent to not follow their dreams! This mom worked hard and is creating a new exciting life for herself. Our appeal would be to take advantage of some smart planning and understand what it will look financially when you are done.
No doubt about it…this is a tough one!
Oftentimes, parents return to college to pursue an MBA without fully exploring the costs involved. The $60,000 MBA will be $600 to $700 per month in debt payments. Will the change in your salary after the MBA be significant enough to impact your income and balance (to a certain extent) this additional monthly expense? It may or it may not. Either way, we only ask that parents be aware of what their financial picture and monthly cash flow looks like after pursuing their higher education goals.
Explore repayment and refinancing options to see if they can help with your loan balances. Too many people don’t take advantage of loan repayment and understand if it could be good for their situation.
What to do for the student.
The most important thing you can do for a student is to help them search for the right college for them. The right college needs to be a social, academic, and financial fit. Financially, don’t rule schools out based on the sticker price. You need to understand how the different colleges award aid.
You should be aware that a parent’s debt, including student loans, credit cards and your mortgage are not included in the calculation of need in the Free Application for Federal Student Aid (FAFSA). The expected family contribution is higher than you may think it should be because the parent’s debt is not included in the figures. Parents look better off on paper than they really are.
Students may be eligible for more financial aid at schools who also require the CSS PROFILE™ use the institutional method of calculation, which allows for some debt expenses to be included in the need calculation at some institutions. (See our blog about the different methods of calculating need.) Remember, not all colleges will meet 100% of a student’s need so factor that into your planning.
A side note…If a parent has mishandled their debt and has a bad credit history, they may not qualify for a Parent PLUS loan for their student. If they are denied the PLUS loan, the student may be eligible for more federal loan money as a result. Parents should apply for the PLUS loan knowing they’ll be declined to benefit their student. Dependent students whose parents were denied a Parent PLUS loan can borrow at independent student limits.
Search for those scholarships especially those colleges who award merit aid! As part of the search, investigate how your child’s GPA and test scores match up with those accepted applicants, and look to see if a particular college awards merit aid to students matching your child’s numbers. The vast majority of money awarded to students comes from colleges and is based on the student’s merit. Collegedata.com is a good source for these admissions statistics and financial aid information. If you are in the top 25% of students you have a much better chance of receiving a merit scholarship.
Parents should chase their educational dreams.
They just need to be aware of the result and how they will fulfill the dreams of their children. It’s not impossible. It just takes a little extra planning.
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