You don’t want your kids to be burdened with huge loans when they graduate college. That’s great, but you cannot handle the burden of the loans either. You have to then go to your children’s grandparents for loans or gifts to relieve the monthly student loan payment burden (usually between $700-2500/month). What would happen if you ask Grandma and Grandpa to help with education BEFORE junior goes to college instead of asking them for help after?
If you have two kids, and you have to take out $125,000 for their combined college tuition (i.e. 8 years of college), you, the parents are left with a monthly burden of about $1500/month in loan payments. Ouch! Now, you find yourselves unable to meet your monthly needs because of this loan payment.
You’re building a balance on your credit card, you spend more than earn each month and you’re spiraling into a massive liquidity crunch (that feeling of suffocation when you know you don’t have any spare cash for anything). You’re trying to cut back, but you just can’t cut enough and now what?
You go to your retired and thrifty parents (or in-laws) for help. They loan/give you the money to pay off those student loans. If you had the [fill in any body part here] to ask them to help with their grandchildren’s education in the first place things could look a lot different.
Maybe they did not have much money back when your children were small. Maybe they knew (because they read Lori Atwood’s blog) that saving for retirement should trump all other savings including education and they wanted to make sure their retirement was secure before offering to help with their grandkids college.
Those are both good points, but the bottom line is communicate with your parents and in-laws before your oldest starts applying to schools. It may not be comfortable, but a liquidity crunch is far more uncomfortable. Ask how much may be available to help. It does not matter if it’s not been saved in a 529 plan or they just help pay your child’s tuition with monthly contributions.
If they can help you by decreasing parental or student loan burdens before you sign the papers, you could be better off by a lot. At 6.8% (typical student loan rate) on the $125,000 total loan example above, you’re already saving $47,000 in interest over the 10 year payoff period.
It is better to pay for something like education outright (whether you’ve been saving for years or you pay as you go) than it is to borrow in order to pay for it. Find your backbone today and ask your parents, in-laws or wealthy great aunts to help you pay for your kids’ college. Whether they contribute to a savings plan or help pay while your child is at school, it will be better than taking all the loans on yourself and needing to ask for help later.