6 Ways parents can help with student loans

Key takeaways

• The average federal student loan debt is nearly $40,000 – if you include private student loans, it could be as high as $42,673 per borrower.
• Parents can help with student loans by taking out Direct PLUS Loans, matching payments, or cosigning.
• Discussing good financial decisions, offering rent-free accommodations, and even just cooking meals can also make a dent in your child’s college costs.

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On average, students spend $38,270 on college and related expenses a year – and the average borrower has $39,075 in just federal student loan debt. Paying back student loans can take years or even decades. Even if you can’t outright pay for their college education, there are several ways parents can help with student loans, from matching payments to imparting financial lessons.

Who is responsible for student loan debt?

The borrower is responsible for any student loan debt. Here’s a quick look at loan options and the typical person responsible:

• Federal Direct Subsidized and Direct Unsubsidized Loans: The borrower is the student. Even if a parent assisted with the Free Application for Federal Student Aid (FAFSA), the parent isn’t responsible for any Direct Subsidized or Direct Unsubsidized Loans the student takes out.
• Federal Direct Parent PLUS Loans: The borrower is the parent. The student is not legally responsible for any Parent PLUS Loans. Refinancing through a private lender can move the loan to the student, but the student can’t be forced to take on the debt.
• Private student loans: The borrower and any co-signers are responsible for paying back private student loans. For example, if a student borrows from a bank and their mother is a co-signer on the loan, both the student and the mother are responsible.

6 Ways parents can help with student loans

There are several ways parents can help with student loans and the cost of college, even in situations where they aren’t the responsible party – here are some examples:

1. Cosign private student loans. Private student loans can cover the gap between what your student has and what they need. If your child doesn’t meet the lender’s requirements or is offered a very high interest rate, your financial credentials could help them get the funds they need with better terms.
2. Make payments for them while they’re in school. Students don’t have to make payments on federal loans until six months after graduation. Some private options offer deferment options, too. However, excluding Subsidized Loans, interest starts accruing immediately. Even small monthly payments while your student is in college can help offset the accrued interest and lower the overall debt by thousands.
3. Take out a parent loan. There are several loans parents can take out to help cover the cost of college, such as federal Parent PLUS Loans, private parent student loans, 401k loans, and home equity loans. Research and compare your options to determine the best one for your finances and long-term goals.
4. Match your child’s payment. Making monthly loan payments isn’t easy, especially when someone is just starting their career. Matching how much your child pays or even contributing what you can afford can give them much-needed motivation and help them pay beyond the minimum amount to clear the debt faster.
5. Cosign on a refinanced loan. Refinancing can often result in a lower interest rate and more manageable monthly payments for qualified borrowers. If your student isn’t eligible for better refinancing terms, cosigning with them may lead to an approval.
6. Talk finances. Don’t be afraid to talk to your student about student loans and financial responsibility – good lessons now make for a healthier financial future. They should know the basics of banking, how credit cards work, the importance of building credit, budgeting, scholarships, grants and more before applying to colleges.

How else can parents help with the cost of college?

Besides outright paying for the full cost of attendance, parents can help their student pay for college in other ways. You can help ease their financial burden by offering rent-free accommodation, buying groceries occasionally, or cooking meals. Family members and friends may also be willing to donate to tuition payments or student loan repayment.

Talking with a financial advisor before you take out student loans can help you navigate the process and make smart decisions for both your and your child’s future.

Think you’ll need student loan? Estimate your monthly student loan payments and total loan costs to better understand what students may owe after graduation and make more informed decisions now and in the future.