How Parents Can Save Their Children Money on Student Loans

Graduates with large student loan balances are upset that schools, parents, and other adults did not warn them about the consequences of accruing large amounts of debt. Many young adults who take out student loans do not have the life experience to judge how college debt will affect the rest of their lives. Fortunately, parents do have experience handling debt and can teach their children how to avoid making costly mistakes before they depart for college.

• Helping your child choose which university to attend is an important aspect of planning future higher-education expenses. Public universities have less expensive tuition than private and for-profit schools. For example, the average price of annual tuition for private schools is $31,231 while it is only $9,139 for in-state students at public universities. For someone financing his or her education using student loans, the difference in price is huge.

• Teach your children how student loans work. For example, mention how capitalized interest accrues over time and adds to the principal balance. Capitalized interest can cause monthly payments to become larger than expected. For federal student loans, the interest rates are fixed and low. Private student loans have variable interest rates, meaning it can increase throughout the life of the loan. These are important facts to know.

• Choosing the right major can also be important for college students. Although the demands of the job market often change, income can vary greatly based on career decisions. At the very least, expected income should factor into student loan repayment budgeting.

Graduates Share What They Have Learned about Student Loans

In a recent New York Times article, college graduates were asked what they wish they had known before signing up for student loans. Most wished they had borrowed less, chose worthwhile majors and attended cheaper schools. The article shows the importance of researching the expected costs of higher education ahead of time and establishing budgets so students are not blindsided by loans after graduating.

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