About a year after I graduated college, I met up with a childhood friend for lunch, and she shared the news that her parents had recently given her a bailout on her student loans. Rather than force her to pay back the $15,000 or so she’d racked up, they were going to cover that debt for her. Having just written out a $12,000 check to wipe out my own debt, which was the result of many, many months of intense saving and sacrifice, I was, admittedly, a little bitter to hear that she’d been let off the hook.
But I was also worried, because I knew her family was by no means wealthy, and I couldn’t help but wonder what sacrifices her parents had made to cover that debt in her place. In fact, I’ve heard lots of stories of parents picking up the tab for their kids’ student debt, and while it’s a nice thing to do in theory, in practice it can be a dangerous move.
Can you afford to pay off your children’s student debt?
I’m a parent, so I understand the concept of wanting to protect your children from the unpleasant things in life -- which extends to the financial stress of grappling with student debt. And it’s certainly a noble thing for parents to spare their kids the aggravation of having to work those loan payments into their budgets.
The problem, however, is that many parents can’t afford to do so. And by paying back their kids’ debt, they put their own long-term finances at risk.
Take retirement, for example. Your late 40s through your early 60s are a time when you should be boosting your nest egg to ensure that you have enough money to live comfortably during your golden years. But if you take the money you would’ve saved and use it to pay down your child’s student debt instead, you risk falling short later in life.
The same holds true if you’re hoping to pay off your mortgage before retirement -- a wise move, since the fewer expenses you have as a senior, the easier it will be to get by on a fixed income. But if you spend too much money paying off your kids’ student loans, you may not manage to make the extra payments needed to be mortgage-free by the time your career comes to a close.
Therefore, if you’re thinking of helping your children pay off their student debt, ask yourself if you can really afford to do so without putting your own finances on the line, or causing yourself a potential hardship at present or in the future. If you’re rolling in money, or, at the very least, have enough of it to go around, then sure, help out your kids. But if that’s not the case, don’t make sacrifices that could haunt you in the long run.
Another thing to remember is that your children have many years to pay off their student debt. But if you’re older, you might only have a few years until retirement kicks in, and if your savings aren’t great, it pays to focus on yourself.
Help your kids in other ways
Paying off your kids’ student loans may not be the right solution for your family, but there are ways you can make that debt easier on them without sacrificing financially. For example, you could allow your grown kids to move back home for a year or two, live rent-free, and use the money they’d otherwise spend on rent to knock out their student loans. Or you can agree to give them cash toward that debt in lieu of birthday and holiday gifts -- things you’d conceivably be spending money on anyway.
The easy way out isn’t always ideal
Having your children pay back their own student loans is also a good way to teach them how to function as financially responsible adults. That friend of mine whose parents bailed her out? She’s come close to filing for bankruptcy on more than one occasion. Now, this isn’t to say that not having to pay off her own loans taught her she could get away with reckless spending -- but it probably didn’t help matters, either.
In the end, you shouldn't offer a handout if doing so hurts your finances. Not only might you regret it, but your children might not even want your money if they knew what it was really costing you.