If you've been footing the bill for your child's student loans, it might be time to pass the torch and let your adult son or daughter take over the payments.
Whether that thought has you elated or terrified, there's something you should keep in mind: continuing to pay student loan bills long after your child has graduated could mean shortchanging your own retirement savings. And that can be a recipe for disaster for both you and your kids.
If you're in this position, there are some things you can do to make it easier to pass this financial responsibility onto your child.
Making the decision to let go
Worrying about your kids is normal. But there comes a time when letting go is a good idea financially, even if feels like you'll lose some control over the outcome.
Yes, your child may have some fear about being able to pay their loans and take care of their other financial obligations as well. And likely, this fear is what has you worried that a sky-high student loan burden will hurt your child’s future.
But at some point, you need to take the emotion out of this process and pass the financial responsibility to your child.
So, let's look at it this way: say you're in your mid-50s and you're shelling out $500 per month for your child's student loan payment. Let's also assume you don't have money falling from the sky, so there's a good chance that $500 is being taken from another nest egg — likely, your retirement.
Here's the thing, your child has a lifetime (or at least 20+ more years than you) to pay back that debt. While you're paying their debt, you're missing out on the chance to earn compound interest on your retirement savings.
The longer you delay contributions to your retirement, the more years you can expect to work. And if something happens and you have to stop working earlier than expected, your child may have to bear the financial strain of helping you with your finances.
2 options to consider
Depending on the type of loan you have, you may be able to use one of these two options to have your child assume the loan:
1. Have your child refinance the loan
The first thing you can do is look at refinancing through a private lender. A few student loan refinance companies, such as Laurel Road, LendKey, and SoFi, allow a parent to transfer Parent PLUS loans directly to their child. Private loans can also be refinanced under the child's name.
By refinancing, your child will take out a new loan with new loan terms to pay off your loan. The good news is, the interest rate is often lower after you refinance, so the payments should be more manageable.
2. Have your child take over the payments
If your child can't refinance in their own name, they can take over your payments informally.
You keep the loan in your name but your child makes the payments. If you decide to go this route, ask your child to set up an automatic monthly payment so the loan stays current.
If you have a federal loan, you can also look at getting on an income-driven payment plan, which can help lower the monthly costs.
Parent PLUS loans are eligible for the Income-Contingent Repayment (ICR) plan, in which monthly payments can't exceed 20% of the borrower's income. Of course, that 20% will be based on your income, not your child's.
Figure out if you qualify for refinancing and see how much you might save with this Student Loan Refinance Calculator.