Who Will Pay for College — You or Your Kids?

Your teen is planning for college. It’s the perfect time to take a step back and consider these statistics: As of 2018, Americans owed $1.48 trillion in student loan debt — and make an average monthly payment of $351.

Then, consider that only 22 states require high school students to take a course in economics. It's no wonder that for many parents, explaining the ins and outs of taking on a loan — and paying it back — rests heavily on their shoulders.

There’s no magical map to follow, but there are a few good routes to explore when navigating the student loan landscape with your kids. These include who pays for what, how budgeting and debt repayment work, and what scholarships and financial aid are available to help cover the cost of college.

Who pays … and how

Preparing for college is an emotional stepping stone of life. This might be the first time your child lives on their own, away from home. You’re probably looking to make the process as stress-free as possible, while also setting your kids up for success by reducing the financial strain they’ll face after graduation.

Seventy percent of parents say they’ll cover the total cost of their child’s education; in reality, those same parents are only on track to cover 29% of that goal by the time their child reaches college.

So, who will make up the difference? You, your child, or will you split the responsibility?

If you still want to take on sole responsibility but lack the cash, your options include tapping into your retirement account(s), assuming debt in the form of a home equity loan, or taking out a parent loan. (If you have more than one child, remember not to overextend yourself on your oldest.)

Together, you may decide the debt responsibility will be in the hands of your child. In that case, help them figure out the cost of college and how their decision to enroll in one school over another may impact the amount they’ll owe after graduation.

Understanding debt

Before borrowing anything, both you and your child need to understand the financial responsibilities of student debt. For most kids, this will be the first time they’ll be in debt, so they’ll be relying on you for advice.

Start by calculating how much your child is likely to owe; then, put that number in context. Mock up a budget based on what they can expect to make in an entry-level job in their desired profession, and then subtract anticipated rent and spending money. Next you’ll layer in his or her student loan payments. Don't be afraid to show how directly a school’s tuition will affect the amount owed upon graduation — or the salary they’ll have to find to comfortably repay their student loans.

Know your options

Perhaps you don’t want to assume full responsibility for your child’s tuition, but want to contribute in some fashion.

If you have good credit, private lenders often offer parent loans that are competitive with federal loans, called Direct PLUS Loans. Interest rates are set based on credit, and there can be no origination, application, or disbursement fees.

If your credit isn’t as good, PLUS loans allow you to get approved with a better rate than you would with a private lender. But you’ll have to pay the origination fee. These federal loans allow parents of dependent undergraduate students to borrow up to the cost of tuition — minus any other financial aid — at a fixed interest rate for the life of the loan. Parents will also pay a loan fee on the total amount of the loan.

Another way to help your soon-to-be college student is to co-sign your child’s loan.

What to remember

Sending your child to college is a big accomplishment. It’s filled with excitement as they embark on the next chapter of their life. But since it’s such a large expense, the financial obligations can add extra stress. That’s why it’s important to figure out how you and/or your child will cover the cost beforehand. That way everyone is on the same page so you can all enjoy the journey.

Ready to take the next step?

Citizens is here to help you navigate your student lending options for today and the future. Make sure to visit our Student Lending page — we’re on chat.