As a parent you may have produced a bright spark off-spring who is about to commit the next four years of their life to studying a subject you may know little about, such as Ancient Greek or nuclear physics. Maybe your little darling is off to study medicine and has promised you free health care for life. Whilst you may not be finely tuned to the nuances of their studies, you can be pretty sure they aren’t as yet very well tuned to the realities of the financial world awaiting them, unless you’ve lucked out and produced a budding accountant (with free tax returns for life awaiting you.)
Even though your soon to be, highly well paid child, may have some specialist knowledge, the chances are they still look to you as the parents to be worldly wise on things in general. How to get the red wine stain out of their favorite jacket, and what having a loan actually means,should be the parents expertise. Even if you aren’t that certain how the whole thing works it really is your responsibility as the adult here, to be able to advise your child about loans, and what they entail. It really is in the best interests of the whole family if you can steer your child in the right direction, so familiarize yourself with as much as you can about what is involved (no need if you are already a bank manager yourself of course.)
You should endeavor to make your child understand what a huge commitment a student loan is, the importance of making every payment on time, and the necessity or trying to pay it off as quickly as they can. You will be able to make their eyes glaze over with every anecdote you’ve ever heard about financial mismanagement, and what happened when that terrible woman you work with had her brand new car repossessed in front of the whole company. If you don’t know any dire stories off hand to use to instill financial caution in your child, then make some up, or find them in the newspapers. The key really is to make them think you know a lot, and can advise on fiscal prudence. Be humble and tell them about any dreadful financial mistakes you made yourself.
Acquaint yourself with those dreaded terms which are going to be bounding around on the loan papers, interest rates, variable, fixed, accrued, principal, co-signer, and repayment. Learn about fees, pre-payment, late payment, deferred payment and consolidated payment. Sit down together with your child and discuss all these things so that you are certain your child understands and knows what they are committing to.
Persuade them it makes no sense at all to pay more for the next ten years just so they can get a free pencil from the company. Make them aware of what credit reports are, and how they play a part in their future lives. If you are totally not financially inclined yourself then find someone who is and bribe them to go through all these details with your child. Finally if your child tries to sweet talk you into co-signing a loan for them then make then understand exactly what they are expecting from you. Possibly you may consider it prudent to have a contract regarding this drafted and notarized. Do remember to include provision for your child to support you in your old age in this contract, after all they are about to be college educated.
As the parent you really do need to know that your child does understand the huge financial commitment of student loans, and the responsibility and perils they contain. Even if you aren’t able to help them financially yourself, you will be assisting them highly by instilling good sense into them about their future financial dealings, and why it is better to reduce their borrowing as quickly as they can. After all you don’t want them still paying off their student loans whilst having the exact same chat about student loans with your grandchildren.