Are There Benefits to Letting Your Student Borrow for College?
Why Parents Might Not Want to Shoulder the Entire College Burden
As a parent you feel a certain obligation to take care of your children through their younger years and to give them a good start in life. You have worked hard to save money, and the time has finally come when you can look forward to sending your now-grown child off to college. You completed the FAFSA, helped your student apply for scholarships, and compared financial aid offers to come down to a final decision.
But there is still a certain amount of expenses that will need to be covered through student loans. The question you must ask yourself now is how much of those student loans should be your student’s responsibility, and how much should be yours. Are you doing your child any favors by not involving him or her in the financial responsibility, or is it your obligation as a parent to take care of everything? Here are a few benefits you might want to consider as you decide whether you should let your student borrow money for college:
- Your child learns how to weigh financial decisions: You know that there are many factors which go into financial decisions in adult life, but your child may not yet understand this process. You weigh the costs and benefits of home ownership, car purchases, remodeling, and retirement savings with every financial decision you make. If nobody gave you any advice when you were young, you might have made a few mistakes along the way. Don’t deprive your child of this opportunity to learn. Discuss the benefits of each college, the amount of money that will need to be borrowed to graduate, future earnings potential, and the life impact of having outstanding student loans.
- Your student has more “skin in the game”: If you pay for everything, then your student does not have as much motivation to succeed. He or she may feel more inclined to slack off, or not try as hard. When students know that their financial future hinges on their doing well in college, they are more likely to pay closer attention to what they are studying.
- Better budgeting skills: We have all heard about students who ask for money every time they are in touch with their parents, or those who max out their student loan options and spend the money frivolously. Some run into the trap of easy credit card money. Companies will often visit college campuses offering high-interest cards to students who don't yet have the necessary budgeting skills. The students feel as if this is free money, and charge all types of unnecessary and unneeded items, and are shocked when the bills start rolling in. Making a plan to repay student loans is a good first step to learning about the downside of borrowing and paying interest. Teach your student to put together an estimated budget for the year, to only borrow what is necessary to meet that budget, and to studiously avoid taking on additional credit without carefully thinking through the long-term consequences.
- It’s better for you and your family: Unless your student is an only child or you have a sufficient financial income, paying for college puts an extra burden on the entire family. Not only do you have to meet your routine expenses, you are now also covering the costs for an individual who may not currently be living in your home. Other children still have their activities, and may also be looking forward to their own college careers. You may have aging parents to care for, and you have your own financial responsibilities and retirement planning to take into consideration. If you take care of yourself now and in the future, chances are you won’t be the one turning to your children for financial assistance when the need arises.
Make sure you sit down and discuss your thought process completely with your student. State exactly how much you will be willing to repay and how much you will expect your college graduate to repay out of future earnings.