How Much Money Should Parents Loan To Their Child For College Education?
Most parents agree that sending a child to a college education and paying for the expenses, is a burden which is not for the faint-hearted. Parents admit they want their child to benefit from a college education but are often scared the financial burden on the family can be devastating. They are often concerned about how much money they should loan to their child for the college education which is needed.
Sending a child off to college has the potential to add thousands of dollars to the family budget apart from the money received from any financial aid. The sum of money mentioned does not consider expenses for travel, occasional entertainment, and opportunities for semesters abroad. Families that are capable of bearing these expenses, along with a combination of federal and private student loans, are aware that a debt load is still growing in the background which will need to be confronted at some time during the future. Under the circumstances, what can families do and how can they approach this problem?
The Loan Amount Should Be Decided By Using A Three-Pronged Approach
Parents Should Try To Get Money From Scholarships And Grants
The best method to go through the hardships of paying for college is to try to obtain the money from scholarships and grants which usually do not have to be repaid. Many scholarships and grants are included in the financial aid package provided by the college, but families can make a collective effort and search for other sources of financial aid which will be available. The aid can come from community organizations, professional associations or corporations. The scholarships and grants will take away the concern of making a repayment and leave families without the worry of being indebted.
Parents Can Also Consider Available Cash Resources
The existing cash resources of the family can also be used to fund the education of the college-going child. It could possibly be in the form of funds set aside for college ever since the birth of the child. Many families exercise the option of taking money from their retirement accounts or even choose to borrow against a line of credit on home equity. In such cases, parents will get the finance needed for the college education of the child but will be confronted with tax and financial implications over the long-term.
This option can also impact the amount of financial aid granted the student for the next year. The only other choice available for parents would be to collectively pitch in and develop creative methods either to generate additional revenue or curtail expenses to pay the maximum possible from the existing funds during the child’s experience in college.
Getting into Debt Should Be The Final Option For Parents
Expenses for college are showing no inclination of being reduced and the final option for parents when they have to deal with college expenses, is to obtain some form of debt. The common choice being made by most, is to access federal student loans and in cases where additional money is needed, the possibilities of exploring private student loans also exist.
It is essential for the parent and the child to understand the implications of these loans before obtaining them and get information about the monthly repayment costs in the future. A number of families and students are even putting money on their credit cards for the college expenses which is often a mistake which should not be committed. Any funds drawn for college expenses from the credit card need to be paid immediately and often with a considerable rate of interest. Families will not be able to afford these expenses, especially when they find money in short supply.
When thinking about college expenses of the child, parents need to answer some difficult questions and consider how much debt they can take on and add it to their existing expenses. They must understand that their actions have the potential to affect the rest of the family and even their retirement. Alternatively, they can consider passing on the cost of the loan to the child knowing well that it will cause a financial strain on the child during the first years after he or she graduates.
When considering how much money parents should loan to their child for college education, it will be better for the parents to have an honest dialogue about money with the child beginning from their high school years. Parents must make an attempt to explain family income and expenses to the child to ensure no surprises are in store when the time arrives to look for colleges.
The college-going child must be aware about the kind of money the parent will be able to afford. Parents must not wait until the student has graduated to discuss student loans. They should rather make it clear from the beginning about the responsibility of the loan by ensuring that a realistic opportunity for repayment, also exists.
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