Teens planning to take out student loans in the near future should be prepared: Unless they’re looking for moral support, approaching the ‘rents for help might not be the best option.
Only 52% of parents plan to assist their kids with student loan payments, the lowest percentage on record, according to a new survey by Discover Student Loans.
That’s in spite of the fact that college costs are now higher than ever. In the past decade, in-state tuition for public four-year schools rose 4.2% per year, much higher than inflation, and experts say the trend will likely continue, MarketWatch reports. At the end of 2013, Americans owed a whopping $1.08 trillion of student-loan debt, a $114 billion increase over the year. More than 10% of student loans are over 90 days delinquent, a higher rate than credit cards, mortgages and auto loans.
It’s unclear exactly why parents are reluctant to help foot the bill for college, but the decision might be in their best interest. According to MarketWatch, households with teens and older kids are far behind on retirement savings. Among parents ages 45 to 54 who have saved something for their golden years, the average is only $60,000, and the average for people ages 55 to 64 is just $100,000.
Financial experts recommend having at least 11 times your final salary in the bank for retirement—but it’s projected that today’s workers will only have 8.8 times their final income. Saving for retirement becomes more difficult if parents take on the additional burden of their kids’ student debt.
Aside from shelling out cash, there are many ways parents can support children with loans. Discuss healthy budgeting and various repayment plans, such as consolidation and income-based options (including Obama’s recent expansion of his Pay As You Earn program). If your child is out of a job or is up against other major financial difficulties, a last resort is deferment or forbearance. It may be tempting to put loan payments off, but the debt will continue to accumulate interest.
If you want to help your child further, you may consider allowing him to move back in with you. Set expectations upfront, like being responsible for chores or paying a small amount of rent.