Sense & Centsibility Blog
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Navigating Student Loans with Your Child: Watch Your Step

It’s your favorite online show binge watcher here. In this blog, I’ll refer to a new competition show based on a favorite childhood game, “The Floor Is Lava.” Instead of kids hopping on couches, flinging cushions and getting yelled at by a parent, teams leap from drawers to couches (or planets to rocket ships), while avoiding a fall into a pool of red slime. This “lava” may be fake, but the face plants are real.

Similarly, when you are a parent navigating the world of student loans with your child, you may feel stressed jumping from the Free Application for Federal Student Aid (FAFSA) platform to the college’s financial aid “couch,” wondering why you are tired and slightly sweaty.

Take a few lessons from the “Floor is Lava” show to avoid some potential slippery situations.

1) Assess your surroundings; where is the end?

Successful teams on the show take the time in the beginning to assess the different routes of the course and figure out how to effectively get to the finish line. Those who yell, “I’m just gonna go for it!” end up with a mouthful of goo.

Lesson for parents: Calculate the total cost of the degree your child wants to pursue. Review the FAFSA award to figure out the total amount of grants and loans for each year. The gap between grants/loans and the cost of the degree is considered the student’s, and in many cases the parent’s, responsibility.

If you plan to take on this responsibility, you currently have three options: Direct Federal Parent Plus loans, private parent loans or out-of-pocket payments. If you go the loan route, visit FinAid.org, and use their calculators to estimate future student loan payments. Be aware that payments for parents begin right away once the loan is dispersed, NOT when the child is finished with school. Also, keep in mind that private loans have fewer options should the payment become unaffordable down the road.

2) Set expectations and know your limits.

On the game show, some of the contestants prefer using their arm strength, while others rely on their balance. However, contestants are most successful when they are honest with themselves about what they could realistically do.   

Lesson for parents: OK, so you’ve calculated these numbers: 

  • How much will you need to take out in Parent Plus or private loans?
  • How is your credit score?
  • Will the payment be affordable now and in the future?

It’s not always easy to assess your budget and credit, but it’s important to know what you can afford and the maximum amount of help you can provide. This will allow you to have honest conversations with your child about a realistic school choice for them.

As a financial counselor, I have heard parents say, “The school tells me the student can take over the parent loans,” which is partially true. While the student can make the payments on the parent’s behalf, the loan remains in the parent’s name and on the parent’s credit report, and the parent is 100 percent legally responsible for that loan. If the student has good credit and a steady income, they might be able to refinance the loan into their name, but it’s not guaranteed.

Be perfectly clear with your child whether they need to pay your loans. More importantly, be ready to pay them yourself if that never happens.

3) Teamwork is necessary; don’t feel like it’s all up to you.

And now, back to the show. One team member just stands at the starting line yelling at other teammates. While the other two hop around and figure things out, the third member continues to stand there and yell. Finally, the yeller makes a move and jumps halfheartedly, sinking into the lava, along with the team’s chance of winning.

Lesson for parents: I often hear parents say about helping their children financially, “I don’t want to disappoint my child.” They want what’s best for their kids, and the parents sometimes sacrifice their own financial future in the process. Many times, the (now adult) child hasn’t done anything on their own to help themselves because they were waiting to be bailed out. To help avoid this, it is important for your child to be invested in making college affordable, too.

Has your child applied for extra scholarships and grants or looked for a part-time job to help with living expenses? Is a four-year degree something they really want, or do they feel pressured to “go with the flow” and get a degree just because that’s what their friends are doing?

What about more affordable options? It can be much cheaper for your child to go to a community college the first two years, then transfer to the college/university of their choice. Or, there are many trade job opportunities that require a two-year degree and/or on-the-job training instead. If you find yourself working harder than your child to make this happen, take a step back to make sure they’re just as committed.

4) Timing is of the essence.

Let’s go back and see what’s happening with our contestants. At the finish line, there are two steps jutting out to help the team. As time ticks by, the steps slowly sink into the “lava,” making the game even harder and forcing the group to take bigger risks to complete the course successfully.

Lesson for parents: It costs more to wait to pay off these loans. If you can’t afford your Parent Plus loan payments right away, you can put them into deferment, but interest accrues the whole time. That means your payments will be higher in the future and the loan balance will increase when you’re temporarily not making payments. If your credit isn’t great and you qualify for the parent loan, you will likely get charged at a higher interest rate. Therefore, keep working on improving your credit and finances. If/when you improve your credit over time, you may be able to refinance to save money in interest.

5) The takeaways

Taking out loans for your child’s education can be exactly like “Floor is Lava” — sort of. Focus on the key takeaways:

  • Work together as a team.
  • Communicate openly about your/your child’s capabilities and limitations.
  • Always keep the big picture in mind, including current/long-term loan affordability, the overall loan cost and your child’s educational/job goals.

For more helpful information, check out these Sense and Centsibility blogs: “Help Your Student Keep College Affordable” and “Should Parents Pay for College?

This process can be overwhelming, but you don’t have to do it alone. LSS Financial Counseling is here to help. We have certified student loan counselors who can review your overall finances and credit, create a realistic budget with you, and present all your options so you can help your child and maintain financial stability. Call us today for your FREE, confidential session at 888.577.2227.

Kim Miller is a certified financial counselor with LSS Financial Counseling and an occasional binge watcher of online shows.