6 Things Kids Need to Know about Student Loans
The student loan crisis is a serious socio-economic issue in the US. As of 2019, the total accumulated debt has crossed the $1.5 trillion mark. The rising cost of tuition, along with the changing requirements for the modern workforce (that are driving more students to attend college) are responsible for the rise in the national student loan debt. At times like these, it’s crucial that you teach your child how to pay off student loans, whether they’re in high school, exploring career options, or at college, already knee-deep in debt.
At school, children aren’t taught some of the most basic aspects of modern life, one of which includes managing personal finances. As their parent, guardian, or mentor, it’s up to you to teach them how to handle this unfortunate financial pickle.
Regardless of how old your child is, here are some tried-and-tested ways to teach them how to pay off student loans.
1. Teach Them About Loans
First and foremost, you have to start by teaching them about loans, the different types, how they work, and their alternatives, if they don’t know about them already.
As a parent, you may be tempted to look after all of the paperwork for your child.
However, ideally, you must involve them in the entire process, right from the beginning.
Start by telling them about the different types of student loans i.e. Federal, Private, and Refinance.
Tell them how they differ, their pros and cons, and how to opt for the best option based on your financial circumstances.
For example, federal loans are more flexible, whereas the lending limits with private loans are higher.
Discuss and evaluate all of the options with your financial advisor before you make a decision, while involving your child.
That way, your child would have a far better understanding of how everything works, and plan ahead to pay off student loans comfortably.
2. Help Them Pay Off Student Loans with Savings
The old adage, “Teach a man how to fish and you feed him for life” stands true in this case.
The art of saving is one thing which even some adults struggle with. Chances are, you’re probably not very good at it, either.
In any case, the best way to help your child pay off student loans is to teach them how to save.
Remember, savings is a lot more than putting in a few hundred dollars into a savings account.
It’s about discipline.
The best way to teach your child about self-discipline and financial freedom is to give them books.
Here are some suggestions (some of these might even help you out):
- The Kids’ Money Book: Earning, Saving, Spending, Investing, Donating (by Jamie Kyle McGillian)
- Make Your Kid A Money Genius (Even If You’re Not) (by Beth Kobliner)
- Finance 101 for Kids: Money Lessons Children Cannot Afford to Miss (by Walter Andal)
- Rich Dad Poor Dad for Teens: The Secrets about Money – That You Don’t Learn in School! (by Robert T. Kiyosaki)
Remember, the earlier they start saving, the more likely they are to pay off their debt with ease.
3. Teach Them How to Invest
Relying on a job, whether full-time or part-time, and your savings account, isn’t enough.
Repaying student loans can really take its toll on your monthly budget. Both you, and your child, need additional income streams.
There are different ways you can go about doing that, including, teaching them the basics yourself, enrolling them in a course, and/or buying them special books that are targeted younger people.
Open up a custodial brokerage account for them and trust them to start investing.
4. Prepare Them to Take on the Real World
By the “real world,” we mean the modern-day hustle.
Children are accustomed to having their expenses paid for by their parents. Because of this, when they do get the taste of the real world, where they have to pay for their own bills, work part-time jobs, and manage their finances, it’s all too overwhelming.
To avoid this, teach your child what it’s like to work. Motivate them to volunteer, or get internships.
Even better, motivate them to explore the path of entrepreneurship.
All of this, would put them on the path of financial stability, which would ultimately help them pay off their debt.
Benefits of Teaching Your Kid How to Pay Off Student Loans
By teaching your child how to pay off student loans, you’d:
- Ensure that they have a financially-sound future.
- Help them become financially independent.
- Help them save enough money for other, more important things, such as retirement.
Needless to say, sooner or later, your child will thank you for it.
To Conclude: Student Loans can be Avoided
With the student debt crisis going out of hand, it’s more important than ever to teach your child how to pay off their student loans, or refinance student loans, if worst comes to worst.