Friday, October 23, 2009

Student Loans: Parents signing on for them?

In spite of the American dream of having your children go to college, the number one priority of parents must be to prepare wisely for their own retirement. That means saving and investing and contributing regularly to workplace retirement plans. The other benefit to this sort of thinking is the positive role model it provides for children.

Also, it is entirely reasonable for parents to expect their children to contribute something to their education. For example, every dollar saved from their summer jobs work can help offset the amount of loans needed.

My brother and his wife, now retired teachers in Marathon County, helped their son and daughter sell seeds, manage a huge garden and work summer jobs to save money for their educations.

Kurt, the oldest, went to the Wausau community college to get basic requirements out of the way, as did his sister. Working at Kraft Foods, he saved his money and graduated with his bachelor degree, debt-free. He was accepted into UW-Madison’s School of Medicine, where he worked as a lab assistant.

While he did apply for grants, loans and scholarships, his parents did not co-sign on any of those loans. Of course, they offered as much support in other ways to both children as possible. Today, Kurt is a successful rheumatoid arthritis specialist with a thriving practice in southern Wisconsin.

Of course, he picked a profession that few qualify for. But the basic skills of frugal living and sacrificing early for a better future later were clearly taught by parents who modeled excellent financial decisions.

I recently met with a representative of a student loan organization who tries to help people with repayment plans. She said it wasn’t unusual to talk to parents who had co-signed for several student loans for more than one child.

They didn’t even know which loan was for what — and yet repayment was now their responsibility. Stories abound about the frustration parents feel when their adult child does land a job, their priorities are not on repaying the loans but on purchasing a new car or expensive apartment!

Can you live with repayment options that may include getting a loan against your homestead? Raiding your retirement account when you have few options to ever replenish those accounts? Giving up nest eggs that were achieved through living frugally and with great sacrifice?

Remember that your child — if they take out loans — will have up to four decades to repay. You will not.

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