“It’s OK if people get upset,” Kingsbury says. “The pitfall is if people get upset and don’t get back to it.” Instead, use this opportunity to talk about how much you’ll borrow and to teach your child how to analyze the value of a large purchase. Allen says he went through a sample budget with his daughter to illustrate the cost of her loans and how they might limit her flexibility in the future.
He liked that the exercise made things more concrete than “just saying don’t take out debt.”
Figure out who’s responsible A conversation is also necessary to determine who’ll repay the parent’s loans.
If your child will – and 45% of families expect the parent and child to at least share this responsibility, according to the Sallie Mae report – that can affect your decisions.
Angela Colatriano, chief marketing officer for College Ave Student Loans, says some families want the child’s name on the loan because he or she will repay it.
“They don’t want a handshake agreement,” she says.
But only the parent is legally responsible for a parent PLUS loan. You’ll need to weigh that when considering borrowing options. PLUS loans have less stringent credit requirements than private loans and offer everyone the same fixed interest rate. However, PLUS loans also have large origination fees and are available only to parents – guardians and grandparents aren’t eligible, for example. Your ultimate goal should be getting the least expensive loan you qualify for. If that’s a PLUS loan, make sure everyone is on the same page for repayment. Kingsbury suggests writing a simple, one-page agreement that “would spell out what the expectation is and what happens if there’s a conflict.” Consider co-signing Parents who prefer private loans can borrow in their name or co-sign with their dependent. Either option means you’ll be responsible for the loan.
“It comes down to a family decision,” Castellano says. “Families should explore both options.”
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