Five Steps to Manage Your Student’s College Debt
By Brendan Coughlin, Head of Education and Auto Finance, Citizens Financial Group
According to a new study by Citizens Financial Group, only 55 percent of parents with children in college have a plan in place to pay for and manage their children’s college debt. Considering ninety-four percent of both parents and college students are concerned about the rising cost of college, not having a payment plan is a major cause for concern.
Student loan debt has reached $1.11 trillion (Federal Reserve Bank of New York) and parents are taking on a portion of the debt to help their children – putting their financial stability and retirement at risk. According to Citizens’ survey, 55 percent of parents believe that investing in their child's college education will negatively impact their financial stability and 54 percent worry that their own retirement will be jeopardized. In order to combat this issue, there are a few tips parents and students can take into consideration as the new school year begins.
- Look at Alternative Options. Before taking out a loan on behalf of your child, discuss alternative options to finance school, such as having your child live at home and commute to school or encourage your child to take on a part-time job on campus. These are just two options that can help you save money (by not paying room & board and a meal plan) or add extra income (through an on-campus job).
- Take Action – Set Budgets. Instead of hoping your child will be fiscally responsible without guidance, be proactive and set boundaries. First, take a hard look at your own finances and decide just how much you can help each semester. Then, talk to your student about what they will need to be responsible for – whether it’s commuting costs, room & board, buying books, or financing their meal plans. Last, help them set a budget and check-in with them at least once a month to make sure they are staying on track. This will teach them to be fiscally responsible and understand that Mom and Dad can’t finance their every whim.
- Choose (and use) a credit card wisely. It can be really handy to have a credit card to help finance certain expenses, like books and dorm needs for each semester. That said, it’s vital to do your research before signing up for a credit card. Pick the card that has the best offer for your financial situation – whether it’s a low- or no-interest rate for a year or a perks card. Last, always be sure to pay off the balance, so you don’t end up owing more than the original price of the charges with accrued interest. Teach your child how to choose and use a credit card as well to help them learn how to manage and build good credit.
- Think Ahead. Take the time to familiarize yourself with when, and what, your payments and your child’s payments will be after they receive their diploma. Several banks, including Citizens Bank, automatically send borrowers a Student Loan Annual Summary that reiterates their loan amount and interest rate to help borrowers stay informed about their borrowing.
- Consider Refinancing Your Loans. There are also many repayment options available to student loan holders which let borrowers refinance loans at a potentially lower rate. This can help you or your child reduce monthly payments and free up money for other endeavors.
By taking control and assessing your current financial situation and discussing your finances openly with your child, you can set a plan to better manage both of your debts and achieve financial stability.