After spending your entire life working, building a career, running a business, and raising a family, retirement is an intensely anticipated phase. You save up for decades, waiting to accumulate enough to relax and enjoy your days traveling, taking time out for your hobbies, spending time with your partner, kids, and just focusing on yourself.
The assumption is that by the time retirement rolls around, you’re going to be free of all your financial responsibilities and expectations, using your savings and retirement plan for the remainder of your time.
However, parent loans can set you back by years, leaving you indebted and unable to retire the way you planned.
What You Need To Know About Parent Loans
In a culture that insists on financial independence and autonomy by the time your child turns 18, it’s hard to ignore the limitations and economic hurdles that prevent it.
There is a unique stigma in the U.S., about parents helping to pay for their kids to go to college. It’s something reserved only for the wealthy, and those whose kids are deemed incompetent. But in truth, the costs of college, housing, and practically livingin today’s day and age is several-fold more expensive than it was back in the day.
Most parents of college-going teens today have experienced a fraction of steadily rising cost of college education, with a single year at a private university costing tens of thousands since their college years. Simultaneously, there has been no real increase in minimum wages and setting a standard for the livable wage.
A high school graduate is unlikely to have sufficient, if any, credit history and information to secure a personal student loan and will most likely require a cosigner. The difference arises here.
While regular private loans will require a cosigner alongside the student, who’s responsible for paying the loan, as a cosigner, you’re taking on responsibility in case the borrower fails to come through. With parent loans, you’re the only borrower listed on the agreement.
You have federal and private parent loans, with the former being known as Parent PLUS loans. These loans are quite similar to one another, but private loans tend to offer certain perks and advantages to borrowers.
· Deferments and forbearances are available
If you are unable to make repayments at any point, you can opt for deferments and forbearances through your private lender. It’s important to be clear about your limitations and issues that arise and your contingency plan.
· Certain lenders make exemptions for death and disability
In case the primary borrower or student dies, or there is a case of permanent disability and injuries, the loan may be discharged. This is important to cover in your terms because it varies from lender to lender.
· You typically don’t require an additional cosigner
Student loans might require a cosigner as a guarantor, but parent loans typically do not. You can cosign with your co-parent or other guardians as an option, however, there is generally no need to.
· Credit history is important, but income less so
Of course, as is the case with any loan, credit history becomes a crucial factor in granting the application. Your income is less important, so long as your history reflects your financial capability to commit.
But with all this said and done, parents will unsurprisingly be worried about the impact these loans can have on their future plans and savings.
How to safeguard your future and savings
However, there’s no need to panic just yet. It’s entirely possible to protect your interests while supporting your kids. This applies to parents who are considering taking on a parent loan, both in the near and far future.
Remember these key tips to prevent significant losses and risking your retirement plans:
· Don’t borrow more than you can pay within 10 years or by retirement
Whichever of the two comes first, don’t overcommit yourself.If you expect to retire before the decade is up, or even if you have the option for a more extended repayment plan, stick to what’s manageable within your timeline. It’s difficult to make payments without a steady income or force yourself to continue working like so many other parents do.
· Your loan repayments and debt should be less than your income
The amount borrowed should be significantly below your current income. The reason for this is that you’re unlikely to see much income growth, especially if you’re nearing retirement, and will be stuck with a payment more significant than you can afford.
The same applies to parents with very low income, who should not be taking on loans ideally. Fortunately, as mentioned earlier, income levels don’t matter as much as credit history does with private loans.
· Refinance your loans early on
Refinancing is another great option available to you. For many of us, debt exists in various forms, from car installments to educational loans, mortgages, bills, so on and so forth. Working with a trusted agency to consolidate and refinance your loans is one way to manage your expenses, often at lower interest rates and easier management. Private lenders such as ELFI will also let you refinance your Parent PLUS loans at competitive rates.
· Transfer them to your kids when the time comes
Last but not least, share the load. Your kids eventually do need to leave the nest, and even if you help them take flight, eventually they should be able to do it on their own. It’s not you flaking on them or backing out, especially if they arefinancially stable and earning enough to make the payments.
Loans, especially thousands of dollars worth, are a massive commitment. Work only with a credible lender like Education Loan Finance (ELFI) for undertaking a parent loan. Their low-interest, flexible repayment plans, as well as parent-loan refinancing services, can help you avoid major hurdles that arise in the process. Reach out to them today!