Understandably, parents and students are elated upon finishing college or graduate school. Getting a degree is something to be proud of, however, academic success does not always lead to fiscal maturity. Many graduates have accumulated a large debt burden, and it’s important for parents to keep tabs on whether or not their children are keeping up with loan payments.
Furthermore, parents might be even able to help find ways to reduce their child’s debt through loan forgiveness plans or refinancing.
Impact On Students & Families
According to a recent study released by Junior Achievement and PwC, nearly one in four Millennials believe their college loans will be forgiven. Some other key findings of the study revealed:
- Sixty percent of Millennials base their school choice on financial aid factors. Sixty-two percent did not attend their first college of choice due to high costs.
- For Millennials ages 18-29, the top financial worries are college tuition and student loan debt. Over 20% said that it was their family’s biggest money concern.
- One-third of those surveyed pay over $300 per month in loans, and a significant number pay over $1000 each month.
The study clearly shows that higher education debt impacts the lives of many families. In fact, according to the Pew Research Center, over the past few years the average amount of student debt has grown to nearly $30,000.
The hidden danger to parents is that some graduates simply neglect to pay off their loans. They might forget, or they just might ignore their responsibility. Unfortunately, many parents find out when things have gotten out of control. In these cases, accumulating interest and fees can dramatically increase the total amount that has to be paid. I
Dangers Of Not Paying Loan Obligations
The moment a person takes out a student loan, all the information about this debt is recorded by credit rating agencies. These agencies accumulate repayment data which helps determine a person’s credit score. Negative information stays on a person’s credit report for up to seven years or more. A bad credit rating can affect your child’s future ability to get a mortgage, car loan, credit card, or approval to rent a home or apartment.
Remember, if you co-signed the student loan agreement, any payment default could negatively affect your credit score as well and you could soon find yourself on the hook to make sure the loan gets paid. Also, if your child’s credit rating is damaged, you may have to co-sign if they wish to take out any kind of loan in the future.
Potential Loan Forgiveness
According to the Consumer Financial Protection Bureau, loan forgiveness actually may be available for many borrowers. One out of four employees in the United States work for a public service employer. For those that hold student loan debt, they may be eligible for repayment benefits, such as Public Service Loan Forgiveness.
Even if a person does not qualify for loan forgiveness, there are still ways to minimize payments. For example, if a debt carries high interest, refinancing the debt could save thousands of dollars over the lifetime of the loan. (Use our site Credible to easily see if you or your child could save by refinancing).
Don’t Be Afraid To Ask
Parents might be hesitant to ask about such a sensitive topic, but just because their child has graduated doesn’t mean they can’t benefit from parental guidance anymore. Sound personal financial management is a skill that requires practice and discipline. Perhaps many adults are in an economic mess because nobody ever taught them when they were young.
No matter what your situation, it pays to communicate with your child about their student loan status. Economic responsibilities can be challenging, and the advice of a wise parent makes a big difference.
Visit Credible to find out how much you or your children could save on their student loans by refinancing.
This blog post is part of the 'College 101' blog series, curated by the editors of HuffPost Financial Education to provide parents with the best advice for financing their children's college educations. To see all the other posts in the series, click here.