PAY FOR YOUR KID’S COLLEGE? 3 TIMES TO THINK TWICE By Cecilia Clark
The debate over student loan debt often neglects a significant group: parents.
About 1 in every 3 dollars the federal government lent for undergraduate education last year were in a parent’s name. In total, federal parent loan debt is over $103 billion across more than 3.6 million borrowers, according to the office of Federal Student Aid. But parents who want to help their children pay for college often fail to do the math. The Department of Education suggests 9% of parent PLUS loan borrowers default within two years of their child leaving school. “They don’t think about the cost and what the return on investment is and whether they’ll be able to manage the cost after the fact,” says Jan Miller, president of Miller Student Loan Consulting. “You have to make the tough decisions now so that you don’t get yourself in a position later that is unrecoverable.”
Here’s when you might balk at paying your child’s college, and why that’s OK.
Payments will be too high If you borrow $17,500 – about the average amount disbursed to each parent borrower last year – at the current 6.28% interest rate, expect monthly payments of about $197 and a total repayment amount of $23,611 over 10 years. If you borrow that amount yearly for four years of college, payments become about $788 with over $94,000 total repayment, assuming the interest rate stays the same and you make payments on time. Kristen Holt, CEO of Greenpath Financial Wellness, a nonprofit financial firm offering free student loan counseling, says some people have to borrow just to make payments.
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