How Much Student Loan Debt Should Parents Take On?

Chances are you know some college graduates with student loan debt. Perhaps you’re one of them.

It’s always better to be the lender than it is to be the borrower, and this is especially true when it comes to student loans.

Many types of student loans simply don’t go away until they’re paid. This includes student loans parents take for their children.

Keeping all this in mind, I’ll address the question I’m not often asked as a financial planner but should often be asked: “How much student loan debt should parents take on?”

But first, let’s explore if it makes sense for you to pay your child’s way through college.

Get Your Own Financial Priorities Straight

If you’re financially unstable, should you really plan to pay for your children’s college education?

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No, of course not! At least not until you get your financial priorities straight and have the means to pay for their education.

That means: Set priorities. I recommend having a solid emergency fund and your retirement strategy in place before you even think about paying for your children’s college educations.

It’s also a good idea to make sure you have adequate life insurance in place and an estate plan as well. Don’t start paying for your children’s college education until you accomplish these foundational financial goals.

Look at College As an Investment

Education is an investment. Like any investment, before you invest, you should do your homework as a parent to determine if you and your child will get a good return on investment (ROI). Here are some things to consider.

Not all colleges are created equal. Does your child want to go to a low-cost community college or an expensive Ivy League institution?
Not all college degrees are created equal. An engineering degree may have a better ROI than other degrees. Keep this in mind, but also understand that your student may plan on graduating with one major, decide to change course when they get to college, and end up graduating in another field.
Not all children want or need a college degree. Some children will benefit from a college education while other children may do better off starting their own business after high school, going to a trade school or pursuing a different dream.

These are just a few of the factors you’ll want to consider to determine if you should pay for your children’s education.

One thing is certain: Paying for your child’s education without any information about their goals and expectations can be disastrous for your finances. Consider the benefits of their proposed college plan – or lack thereof – before you sign on the dotted line for student loans or pay out of pocket.

That leads us to the main question at hand: How much student loan debt should parents take on?

How Much Student Loan Debt Should You Incur for Your Children?

I absolutely love my children. Like any good parent, I want to ensure my children get the education they need.

At the same time, I would want to avoid taking out student loans. It would be my very last resort.

I don’t know about you, but I’ve heard plenty of horror stories about kids who got their parents to sign on the dotted line only to not use their education and waste their life away.

Imagine being stuck with a hefty student loan that didn’t do anything for your kid’s future. Doesn’t that make your stomach flip?

So, how much student loan debt should parents take on? I recommend none. There are plenty of other options out there that can help you fund your children’s college education. And I’m not the only money pro or parent who shares that opinion.

Michelle Schroeder-Gardner of MakingSenseofCents.com answered the question of how much student loan debt parents should take on:

None. A parent should not take out student loans for their kids.

Simply put, but true.

What if you’re a parent who hasn’t saved for your child’s college education and they are about to graduate high school and want to go to college? What if the college they want to go to would probably provide a good return for your investment? What if you don’t have very much debt and reasonably believe that your child should go to college? What then?

Well, Erin Shanendoah of ErinShanendoah.com says:

As a parent who hasn’t had a whole lot of time to save up for my child’s college education, I think if parents want to take on debt to help their kid with college costs, that’s fine – but only if the parents are comfortable with it and it’s only an amount that the parents can easily fit into their budget.

It’s always unfortunate when parents start saving a little too late, but even in those circumstances, it may make sense for them to take out loans for their kids – as a last resort.

Bobbi Dempsey of BrokeParents.com answers the question of how much parents should take out in student loans for their kids:

In an ideal world, my answer would be none, but unfortunately here in the real world things aren’t always so simple. We took out (relatively small) loans for two sons because we had no college fund, and it was either that or they would have had to drop out of school. So I guess my answer would be as little as possible, and never more than they can reasonably expect to be able to repay.

I’m a fan of saving for my children’s college education, and that’s what I encourage you to do, too.

How to Save & Pay for Your Children’s College Education

You might be tempted to open a simple savings account for your children’s education. But unfortunately, over the course of 18 years (or however long you have left before your children enter college), your money almost certainly won’t keep up with the cost of college and inflation.

Look up tuition inflation on your favorite search engine, and you’ll find that it profoundly exceeds general inflation. Historically, economic data shows that trailing averages for tuition inflation has ranged between about 5% and 9% from 1975 to 2005.

I don’t know about you, but I’d hate to see my funds eaten away by any kind of inflation. That’s why I invest money using 529 plans in my state so that I can get a return on my money and hopefully offset the negative effects of inflation.

529 College Savings Plan

A 529 plan is one that allows parents to set aside money in investments for their children. And, it’s my plan of choice.

These plans usually contain mutual funds and their specific details vary from state to state. Look at what your state offers and make sure the investments within your state’s plan makes sense for your situation.

Oh, and did I mention this is a tax-advantaged option? This fact alone makes the 529 plan a great choice.

Grants & Scholarships

Should you pay for your children’s entire education? Perhaps. Perhaps not.

There are so many scholarships available out there it’s mind-boggling. Don’t let your child miss out on this opportunity to save mom and pop some money.

Also, if your child fills out a FAFSA (Free Application for Federal Student Aid), they may be eligible for federal grants that can save you and your child a truckload of money.

Final Guidelines for Taking Out Student Loans

It is best to allow your children to be fully responsible for any student loans they incur. Sometimes, students can get more financial aid (in the form of loans) if their parents put their names on the line for the loans. However, you should consider other routes if possible. Signing on for student loans will tie them to your credit, and if you or your children have difficulty making the payments, it could damage your credit. If you’ve already taken out student loans for your child, then it’s important to check your credit regularly to see how the debt is affecting it. You can get a free credit report summary on Credit.com, which is updated every 14 days so you can watch for changes and get an overview of all the factors in your credit report.

Again, the very best thing you can do is to prepare for funding at least a portion of your children’s education long before they graduate high school. If this isn’t possible, and having your children attend college makes sense, help your children out as you’re able.

I can’t think of any better education for high school graduates than learning the value of hard work, determination, creativity, kindness and common sense. Teach your children these ideals, and who knows, they might just graduate with no debt whatsoever!

This story is an Op/Ed contribution to Credit.com and does not necessarily represent the views of the company or its partners.