Three boys. Three boys went to college. Three boys with student debt. What does a parent, like me, do?
The average student debt is $40,000 and 40 million young adults have student debt. Student debt is a common reality. My first piece of advice is to encourage our graduates to take the debt seriously. The faster they pay it off, the sooner they will be unencumbered to go the next step, such as buying a home. Any time they get a bonus at work, a tax refund, or a pay raise, we should suggest that they make an extra payment. Extra payments can save them thousands of dollars of interest over the life of the loan and decreases the duration of the loan. Also, I recommend helping our graduates create a monthly budget with an emphasis on paying the student loans on time.
As a parent, should we pay off their debt or make their monthly payments? In my opinion as a financial advisor, the answer is – NO! Especially no if making the payment would jeopardize our own retirement. There is no greater gift a parent can give a child than to be financially secure in our own retirement. The airline analogy of putting on our oxygen masks before we assist the children comes to mind. It makes no sense to help with student debt if we only turn around and ask for their help down the road.
Additionally, student debt is a valuable learning tool. Our young adult will learn what it means to have debt, how interest works, and how to budget. Student debt can motivate good work habits and can actually build esteem. Giving our children everything and eliminating serious responsibility can stifle their own progress to grow into strong and successful adults.
If you would like to help your graduate with the debt, I suggest a matching deal. For example, if they pay $100 a month, you will match that amount, or a portion thereof, that fits your budget. Using this technique, they still have the learning experience and motivation that paying debt brings. Again, make sure you do not implode your own financial plan and that you can truly afford it.
In my case, I have to keep in mind that I will have three graduates. I should not start a routine of helping the first graduate if I am not sure that I can help each one fairly. This is another reason why I would put a pause on jumping in and paying your kid’s debt. As parents, we can help down the road when the picture is clearer. Our help does not have to start on day one.
Finally, if your graduate expresses disappointment that you are refraining from paying their debt, blame The Pearl Chaser! I do not mind! Tell them a very smart, sophisticated, funny, successful, pretty, and humble financial expert (no, not Suze Orman!) told you that it was not in their best interest to make their payments at this time. Let’s put a pause on bailing our kids out of responsibility at every turn. True love sometimes involves saying “not now.”
Photo by Colin Maynard on Unsplash