I posted an article on social media a few days ago about student loans (How Do Student Loans Work?). Then I started thinking some more about them. About the feelings they stir up. About their purpose. And gah, how can something so boring drum up so many emotions?
I’m going to take an unpopular approach to student loans: Instead of complaining about them or exploring how to get rid of student loans, let’s talk about why they’re a good thing.
I’ll never forget certain discussions with families when I was an admission counselor. I remember one family in particular — Elise, a prospective student, and her parents. I answered their questions about life at the college, classes and more. As I started in on the requisite financial aid spiel, Elise’s dad leaned forward and put his hand on the edge of my desk. I knew he was about to make a giant declaration.
He did. “We aren’t going to let Elise take out any student loans. So if we can’t pay for this with scholarships and our own money, she won’t attend your college,” he said.
I looked at Elise, who didn’t say anything. At the end of
Elise smiled shyly and nodded.
It’s not too hard
Feelings About Student Loans
Can you finish this sentence? “When I think about my child taking on student loans, I feel _________.”
Anxious? Frustrated? Relieved?
Grant De Roo, founder and principal of ADV Market Research and former associate director of admission at Elon University, says you may not be able to pinpoint just one feeling. “Student loans evoke a range of feelings that can best be described as ‘bittersweet,'” he says. “After all, loans provide a pathway to a college education that may not be viable otherwise, but they may not be the pathway people are looking for.”
De Roo says some of the most common feelings he’s seen and experienced include:
- Disappointment about not receiving more grants or scholarships.
- Fear about what debt means for students after college.
- Relief that there’s an option to make college an option.
Frustrationthat the school doesn’t “value” the student highly enough to award merit-based grant funding.
- Pressure on the student to be practical in choosing a major that leads to a job that will allow him or her to pay off student loans.
- Shame or guilt for parents who want to make the college experience possible but weren’t able to save enough or earn enough to afford it outright.
- Resignation or acceptance that there is at least some way to make it work, even if it isn’t the solution parents or students originally wanted.
We can only handle so much negativity right now, so let’s focus on five positives
1. They enable your kiddo to go to college.
Remind yourself why your child is going to college:
- Bachelor’s degree holders are half as likely to be unemployed as their peers who only have a high school degree, according to the Association of Public and Land-Grant Universities (APLU).
- Bachelor’s degree holders make $1 million in additional earnings on average over their lifetime, according to
Student loans make that possible. A college education is an investment.
Here’s a bold declaration. Consider choosing a college not because it’s the cheapest option, but because it’s the best fit. (Let’s face it, there is always a cheaper option!) If a college isn’t the right fit for your kid, don’t try to hammer a square peg into a round hole.
Why not make sure the fit is perfect, even if it means taking out loans?
Let’s say Elise can list a dozen reasons to attend the college I worked for, but her dad pushed for a cheaper school that she didn’t like. I’d argue that she’d be more successful and get the most out of her educational experience if she chose my school.
2. No credit history? No problem.
Credit checks and proof of income statements and more come to mind when you get a loan. (Remember when you bought your house or got
Student loans are different. Your child doesn’t have to have an 850 credit score to get a federal student loan. In fact, your student doesn’t even have to have a credit history to get a Direct Subsidized or Unsubsidized student loan. He or she must meet
Now, if you, the parent, would like to get a Direct PLUS loan, you will need to undergo a credit check. A Parent PLUS loan, for parents of undergraduate students, falls under the Direct PLUS loan category.
It’s also important to know that most private lenders require you to have a credit score of at least 670 or higher.
3. You can focus on saving for retirement.
Student loans can save your future. Literally.
Check out this story. I know a couple named Bob and Sherri, who are in their 60s. They ran a small business for more than 20 years and poured every last molecule of energy they had into the business. Bob and Sherri believed debt was a four-letter word and worked hard to pay their business off. They also promised each other they’d pay for their kids’ college educations. Bob and Sherri realized their goals. They paid off the business and the kids graduated without any school debt. (Oh, and Bob and Sherri were also rockstars about paying off their mortgage, too.)
But. They’re both now retirement age and don’t have enough money saved to retire. They agree now that if they had to do it all over again, they would have invested for their retirement instead of their kids’ education. Bob and Sherri lost out on a lot of years of retirement account compound interest.
Remember, your kids can always borrow for school. You can’t borrow for retirement. It may be a good idea to meet with a financial advisor to find out whether you’ll have a retirement shortfall — and learn how to handle your child’s college education, too.
Student loans can be a beautiful thing. You’d sure hate for your kids to have to support you later on in life, right?
4. Student loans help build credit.
It’s tough for youngsters to obtain a credit card, much less a positive credit history. Remember trying to buy a car or get an apartment when you were young? Were you turned down because you had no credit?
A student loan is a kind of installment loan, which means your child will repay it after college with regular payments over a predetermined period of time. Your student can build credit by adding new accounts to his or her credit reports. This builds a history of paying back credit (hopefully in full and on time).
Needless, to say, it’s necessary to have a conversation about responsible repayment and how on-time payments build good credit and late payments hurt it. High school is as good a time as any to have
5. They’re more flexible than some types of loans.
Federal student loans are some of the most flexible types of loans available. Here’s a good (though extreme) example due to COVID-19: President Trump announced that interest is waived on all student loans held by federal government agencies until further notice.
In addition, he announced that you can choose to pause your student loan payments for 60 days. Note: Borrowers must contact their student loan servicer to take advantage of this 60-day forbearance. Were you wondering how to get rid of student loans (temporarily) for yourself? This is a great way to do it.
Student loans are more flexible than other types of loans for a few other reasons:
- Income-driven repayment plans can be an option with federal loans. This means repayment is based on how much your student makes once he or she graduates from college.
- Repayment plans can change as needed.
- Federal student loan interest rates are lower compared to private loans.
6. Your child can consider an ISA instead.
There’s always another option, right?
Have you ever heard of an income share agreement (ISA)? An ISA is a contract agreement between your child and the school he or she plans to attend. In a nutshell, your son or daughter agrees to receive borrowed money from the college to fund his or her education. In exchange, your child agrees to pay the college a percentage of his or her salary after graduation. (For many years after graduation!)
“ISAs (in theory) offer a nice alternative to traditional student loans but I haven’t gotten a good read on the market’s receptivity to them versus traditional loans,” admits De Roo.
Know Your Options
How do you know which student loans are best for your child? How do you know how much to take out and what’s available?
Learn everything you can about financial aid, need-based financial aid, student loans and more. And talk as a family about how you’ll handle the cost of college. Talk to schools’ financial aid offices, ask admission counselors questions and more. The best way to come up with the best combination of how to pay for college is to educate yourself about financial aid and financial aid awards.
Guess what happened with Elise, the student whose dad said she couldn’t take
Ask not, “How to get rid of student loans?”! Instead, ask how they can be a tool for your child to get what he or she wants out of a college education.