According to the Anne E. Casey Foundation, student loans are one of the highest sources of debt for Americans, second only to mortgages. We know. At Geyer Law, we often help grandparents incorporate college planning into their own estate and tax planning, with the goal of helping grandchildren avoid student debt burdens.
Tried and true options for helping a grandchild fund college costs include contributing to 529 plans, Uniform Gifts to Minors, or Coverdell Education Savings accounts, directly paying for college tuition, and lending money to the parents of college-aged grandkids.
But what if it’s your children still laboring to pay off their own lingering college loan debt? Often Geyer Law clients explain that while in earlier years they felt the need to preserve assets to fund their own retirement savings; they are now in a position to help children pay off debt after-the-fact.
SoFi.com offers a number of important tips for grandparents who want to help pay off student debt::
- Extra loan payments (beyond the minimum monthly requirement)should be applied to principal, not the next monthly payment.
- If your son or daughter has a mix of private and federal loans, grandparents should offer to pay off the private loans (which typically carry higher interest rates) first.
“Deciding whether to help adult children pay their bills can be a difficult decision.” Latoya Irby writes in thebalance.com. You need to consider the impact on your own finances, she cautions, plus question “whether paying the debt is truly helping or simply enabling your child,”. Irby says, alluding to the danger of creating dependency. Of course, if parents are co-signers on the debt, their own credit rating is at stake. There are also tax implications to consider.
“Keep it legal,” cautions absolutetrustcounsel.com. If, in addition to (or instead of) helping children pay off student debt now, you want to include student debt payoff as part of your legacy to a child after your death, specific directives will need to be included in your will or trust. And, if your help has been in the form of a loan to your child, rather than a gift, forgiveness of that loan needs to be spelled out in your
Helping relieve your children’s long-standing student debt burden is one way of making a gift of education after-the-fact!
– by Cara M. Chittenden, Attorney with Rebecca W. Geyer & Associates