Three in 5 parents with children heading to college said they expect to help their kids repay student loans, according to a Discover Student Loans survey.
In fact, many parents of adult children are already doing so. Some are making payments on student loans for parents, such as Parent PLUS Loans, which they borrowed to help pay for their children’s education. Others are repaying student loans they cosigned.
But how do these student loan payments impact parents’ financial situations? Student Loan Hero recently surveyed parents who took out or cosigned loans for their children’s education to find out.
55 percent of parents have more than $40,000 in student debt
The survey collected responses from parents who are repaying student loans they borrowed to pay for a child’s education and for which they are legally responsible. These loans include both student loans for parents and student loans parents cosigned with a child.
Among the parents surveyed, total student debt is high. Here’s a breakdown of their student loan balances, including both debt they took on for their own education and student loans they used to pay for their children’s education:
- 23 percent have more than $50,000 in student loan debt.
- 32 percent have more than $40,000 in student loan debt.
- 43 percent have more than $30,000 in student loan debt.
Over half (55 percent) of parents surveyed reported a combined balance of more than $40,000 between parent student loans and other student loans. This significant financial burden can hold parents back as they working toward other financial goals, such as saving for retirement.
Almost 2 in 5 parents repay student debt alone
The survey also asked parents how often their children contribute payments toward the student loans borrowed to fund their education. Here’s how they responded:
- 39 percent — almost 2 in 5 parents — said their children never contribute to student loan repayment.
- 20 percent said their children sometimes contribute to student loan repayment.
- 41 percent said their children always contribute to student loan repayment.
Altogether, 59 percent of parents who cosigned student loans or borrowed parent student loans to finance a child’s college degree said they pay some or all of the student loan debt they incurred.
While parents are legally responsible for student loans they take out or cosign, many families have informal agreements about who is responsible for repaying student loans.
It’s not uncommon for parents to take out student loans for parents or cosign student loans a child agrees to repay. However, many parents ultimately are stuck repaying those student loans on their own.
Parents: Discuss a plan for your child to take over student loans
When it comes to shared student debt, parents should keep an open dialogue with the child about who is responsible for repaying it.
Perhaps a child has difficulty repaying their student loans because of low income or high costs of living. Parents can help their child find strategies to create more room in their budget to help with repayment.
Once a child can afford to take over payments, even partially, parents can work with them to make a plan for a complete takeover in the future. Perhaps the adult child can cover 25 percent of monthly payments to start and then bump up contributions until they are paying the full monthly payment amount.
Parents and their adult children also should discuss refinancing. If the child is repaying the student loans, refinancing with the right lender can change who holds the loans to reflect that fact. Some lenders, such as CommonBond, allow a child to refinance Parent PLUS Loans or private parent student loans into their own name.
A child also can refinance cosigned private student loans to remove a parent as a cosigner. Some lenders offer cosigner release, which can remove the cosigner so the primary borrower becomes the sole owner of the debt.
27 percent of parents used retirement savings to cover student loans
Among the parents surveyed, nearly 3 in 10 (27 percent) said they’d withdrawn from retirement savings to help cover student loan payments.
A similar percentage of parents — 24 percent — said they’d considered using retirement savings to pay student debt.
That means student loans for parents do, in fact, harm retirement planning for parents. Plus, early withdrawals often incur costly penalties that can waste some of a parent’s retirement savings.
Even if a parent manages to replace those funds, they lose out on the time those savings could have earned gains and compounding interest.
How to boost a retirement fund’s recovery from parent student loans
Borrowers who have withdrawn from their retirement accounts to repay student loans for parents need to play catch-up to get back on track.
First and foremost, get your parent student loans under control so you can avoid any need to tap into your retirement funds in the future:
- If you’re struggling with Parent PLUS Loans, consider applying for an income-driven repayment (IDR) plan to lower your monthly payments.
- Try refinancing student debt that’s in your name. Whether you have Parent PLUS Loans or private student loans for parents, refinancing could help you secure a lower interest rate. Refinancing also will give you control over the length and monthly amount of your repayment.
- Step up your retirement contributions, especially in the last 10 years before you retire. Refinancing parent student loans can produce savings, which you can then contribute to retirement.
Taking out student loans for parents can set back retirement — but parents don’t regret it
Most experts advise adults to pay down debt as they transition to retirement. Those nearing retirement age and carrying high balances on student loans for parents will have to work a lot harder to follow this advice. Plus, debt diverts money away from retirements savings.
Despite the potentially negative effects of this student debt, most parents (66 percent) don’t regret it. In fact, just 18 percent said they regret cosigning or taking out student loans for a child’s college costs.
Majority of parents don’t know their student loan repayment options
Many parents struggle with their student debt burden. But this survey also reveals that a majority of parents are unaware of options that can help.
For instance, 19 percent of parents surveyed said they were unaware they could put their Parent PLUS Loans on an IDR plan — called Income-Contingent Repayment. And 12 percent didn’t know they could refinance parent student loans into their child’s name.
What’s more, almost 2 in 5 parents (19 percent) surveyed said they were unaware of Public Service Loan Forgiveness (PSLF), which can help eliminate debt for parents and students who hold government jobs or work for certain nonprofits.
Even when parents said they knew about options, they weren’t always valid. For example, 17 percent of parents said they knew about “Obama student loan forgiveness” — even though no such program exists.
Parents could be missing out on student loan refinancing
Refinancing student loans can solve a few problems at once. Borrowers can get lower student loan rates and lower monthly payments. Refinancing also can be a way to move student loans from a parent to a child (or vice versa) or remove a cosigner.
Twelve percent of parents surveyed had already refinanced student loans used for a child’s college to be solely in the parent’s name. A parent might want to refinance to take over a student loan they cosigned and are repaying because a child can’t afford to, for example. Eleven percent didn’t even know it was an option.
Parents also can refinance student debt into the child’s name. Doing so can make the child the legal owner of the loans or remove the parent as a cosigner. Here’s a breakdown of responses from parents regarding refinancing student loans into a child’s name:
- 64 percent hadn’t considered this option.
- 16 percent didn’t know refinancing student loans into a child’s name was an option.
- 20 percent had considered it.
Parents who are interested in making such a move should do so soon. Interest rates are expected to increase in the coming years. Borrowers likely will get the best deals if they don’t wait to refinance student loans for parents.
Putting refinancing and interest rates into perspective, a third (36 percent) of parents said they’re either somewhat or very likely to refinance student loans. Another third said it’s unlikely to affect their decision (32 percent). The remaining third (32 percent) said they’re unsure.
Look for solutions together to repay parent student loans
Most parents who helped their children borrow for college are glad they did. But that doesn’t mitigate the potentially negative effects of student loans for parents.
When the arrangement isn’t working, parents and children need to proactively seek solutions.
The good news is parents likely have more student loan repayment options than they realize. Parents should take the time to research these options so they can create the best repayment plan for themselves and their children.
Methodology: This survey was conducted via Google Consumer Surveys on behalf of Student Loan Hero on April 5-9, 2017, with a nationally representative sample of 1,001 adults living in the United States. “Are you currently making payments on student loans you cosigned for or took out for your child(ren)’s education?” was used as a screening question (with a target answer of “yes”). The survey margin of error ranged from 4.5 to 4.8 percent.
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1 Important Disclosures for Laurel Road.
Laurel Road Disclosures
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
As used throughout these Terms & Conditions, the term “Lender” refers to KeyBank National Association and its affiliates, agents, guaranty insurers, investors, assigns, and successors in interest.
Assumptions: Repayment examples above assume a loan amount of $10,000 with repayment beginning immediately following disbursement. Repayment examples do not include the 0.25% AutoPay Discount.
Annual Percentage Rate (“APR”): This term represents the actual cost of financing to the borrower over the life of the loan expressed as a yearly rate.
Interest Rate: A simple annual rate that is applied to an unpaid balance.
Variable Rates: The current index for variable rate loans is derived from the one-month London Interbank Offered Rate (“LIBOR”) and changes in the LIBOR index may cause your monthly payment to increase. Borrowers who take out a term of 5, 7, or 10 years will have a maximum interest rate of 9%, those who take out a 15 or 20-year variable loan will have a maximum interest rate of 10%.
KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.
This information is current as of June 23, 2020. Information and rates are subject to change without notice.
2 Important Disclosures for Splash Financial.
Splash Financial Disclosures
Splash Financial loans are available through arrangements with lending partners. Your loan application will be submitted to the lending partner and be evaluated at their sole discretion. For loans where a credit union is the lender, or a purchaser of the loan, in order to refinance your loans, you will need to become a credit union member.
The Splash Student Loan Refinance Program is not offered or endorsed by any college or university. Neither Splash Financial nor the lending partner are affiliated with or endorse any college or university listed on this website.
You should review the benefits of your federal student loan; it may offer specific benefits that a private refinance/consolidation loan may not offer. If you work in the public sector, are in the military or taking advantage of a federal department of relief program, such as income based repayment or public service forgiveness, you may not want to refinance, as these benefits do not transfer to private refinance/consolidation loans.
Splash Financial and our lending partners reserve the right to modify or discontinue products and benefits at any time without notice. To qualify, a borrower must be a U.S. citizen and meet our lending partner’s underwriting requirements. Lowest rates are reserved for the highest qualified borrowers. This information is current as of May 1, 2020.
Fixed APR: Annual Percentage Rate [APR] is the cost of credit calculating the interest rate, loan amount, repayment term and the timing of payments. Fixed Rate options range from 2.88% (without autopay) to 7.27% (without autopay) and will vary based on application terms, level of degree and presence of a co-signer. Rates are subject to change without notice. Fixed rate options without an autopay discount consist of a range from 2.88% per year to 6.21% per year for a 5-year term, 3.40% per year to 6.25% per year for a 7-year term, 3.45% to 5.08% for a 8-year term, 3.89% per year to 6.65% per year for a 10-year term, 4.18% per year to 5.11% per year for a 12-year term, 4.20% per year to 7.05% per year for a 15-year term, or 4.51% per year to 7.27% per year for a 20-year term, with no origination fees. The fixed interest rate will apply until the loan is paid in full (whether before or after default, and whether before or after the scheduled maturity date of the loan).
Variable APR: Annual Percentage Rate [APR] is the cost of credit calculating the interest rate, loan amount, repayment term and the timing of payments. Variable rate options range from 1.99% (with autopay) to 7.10% (without autopay) and will vary based on application terms, level of degree and presence of a co-signer. Our lowest rate option is shown with a 0.25% autopay discount. Our highest rate option does not include an autopay discount. The variable rates are based on the Variable rate index, is based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of April 27, 2020, the one-month LIBOR rate is 0.43763%. The interest rate on a variable rate loan is comprised of an index and margin added together. The margin is a fixed amount (disclosed at the time of your loan application) added each month to the index to determine the next month’s variable rate. Variable rate options without an autopay discount consist of a range from 2.01% per year to 6.30% per year for a 5-year term, 4.00% per year to 6.35% per year for a 7-year term, 2.09% per year to 3.92% per year for a 8-year term, 4.25% per year to 6.40% per year for a 10-year term, 2.67% per year to 4.56% per year for a 12-year term, 3.44% per year to 6.65% per year for a 15-year term, 4.75% per year to 6.93% per year for a 20-year term, or 5.14% per year to 7.10% for a 25-year term, with no origination fees. APR is subject to increase after consummation. Variable interest rates will fluctuate over the term of the borrower’s loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree earned and presence of a co-signer. The maximum variable rate may be between 9.00% and 16.00%, depending on loan term. The floor rate may be between 0.54% and 4.21%, depending on loan term. These rates are subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
3 Important Disclosures for SoFi.
4 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.19% APR (with Auto Pay) to 6.43% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 6.43% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of June 15, 2020, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 6/15/2020. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at [email protected], or call 888-601-2801 for more information on our student loan refinance product.
© 2020 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 0.19% effective June 10, 2020.