Risky par­ent loans

Cecil Whig - - FRONT PAGE -

Con­trar y to the ad­vice you will get from many fi­nan­cial aid of­fi­cers, par­ents should not bor­row money to pay for their kids’ col­lege ed­u­ca­tions.

Lock­ing eyes with that first fi­nan­cial break­down for your son or your daugh­ter’s first se­mes­ter will be painful — even if he or she is at­tend­ing a pub­lic col­lege. If you opt to pay for some or all of the cost of col­lege, at the very least you’ll be pay­ing sev­eral thou­sand dol­lars per year. It’s not cheap.

WAYS PAR­ENTS BOR­ROW

Sadly, there are a num­ber of ways that par­ents can sink their own fi­nan­cial ships by tak­ing on debt for their chil­dren’s ed­u­ca­tion. The most com­mon is tak­ing out stu­dent loans — Par­ent PLUS Loans. The prob­lem with that? The fed­eral PLUS loan pro­gram al­lows par­ents to bor­row far more than they can com­fort­ably — or ever — re­pay!

Some par­ents take out pri­vate stu­dent loans, usu­ally in their own names but of­ten as a co-signer on a stu­dent loan. Ei­ther way, the par­ent is 100 per­cent re­spon­si­ble for the debt . Par­ent PLUS loans al­low par­ents (and grad­u­ate stu­dents) to bor­row up to the full cost of an ed­u­ca­tion. Only a ba­sic credit check — no un­der­writ­ing — is used to de­ter­mine whether the bor­rower has the in­come or abil­ity to re­pay the loans.

If par­ents strip the eq­uity in their home us­ing a vari­able-rate home eq­uity line of credit, or HE­LOC, to pay for their chil­dren’s col­lege ed­u­ca­tion, they run the risk of los­ing their home through fore­clo­sure if any­thing goes wrong and makes them un­able to keep up with pay­ments.

Par­ents need to look for op­tions that don’t in­volve go­ing into debt for their chil­dren’s ed­u­ca­tion — ways to grad­u­ate col­lege debt-free.

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