Often parents tell me they want their students to graduate from college debt-free because they are aware of the large debt burden many students are carrying these days. These same parents, especially those who also don’t expect their children to get campus jobs, are also seriously underfunding their retirement accounts.
Prioritizing your retirement funding over college funding doesn’t make you a bad parent. Many years from now your children will actually thank you for it when they don’t have to support you in your old age.
Having your student take out the maximum in federal student loans is a good idea for very important reason:
The U.S. now has the most generous student loan repayment program in the world. The problem is that almost 90% of the public, the majority of the news media, and even most members of Congress are unaware of the desirable provisions that come with these loans.
While it is true that you never want your students to default on their student loans, it is highly unlikely that will happen if your student consolidates them under a little known program called “Pay As You Earn”.
Monthly payments on an $80,000 debt are the same as they are on a $30,000 debt.
Under “Pay As You Earn” your student only has to pay back an amount equal to 10% of their discretionary income each year. (Discretionary income is defined by the government as adjusted gross income minus 150% of the federal poverty line income.) Accordingly, regardless of the size the debt, the payments remain the same.
The government will completely forgive any student loan balance in as little as 10 years.
A student who goes to work in the non-profit, education, or government sector and dutifully makes his small monthly payments, will have any remaining balance completely forgiven after a ten-year period.
Students working in the for-profit sector will have their loan forgiven in just twenty years under the same Program.
33 Million Workers Qualify To Have Their Student Loans Forgiven and Don’t Know It.
That’s a big number and was reported by the Washington Post just last year.
I would never recommend that students borrow more money than they can afford to pay back. I would also never recommend that parents decimate their retirement savings to help their students pay for college.
With this very generous government loan program, you now don’t have to do either.