What to do with Children who Won’t Repay their Loans

If you have raised children who develop an irresponsible attitude towards repaying their loan obligations then unfortunately you are not alone. Some parents have little sense of fiscal responsibility themselves and are not in a position to teach their children how to deal with money, but in today’s society the parents are often the only example a child learns from where finances are concerned. If you want to ensure that your offspring develop fiscal responsibility then lessons need to be ingrained by parents to prevent the child developing spendthrift habits which will lead to debt and defaulted loans.

Unfortunately the practice of indenture is no longer permissible under international law so you are no longer able to make your child a debt slave until their loans are repaid. Debt bondage could still be extended in the form of charging your child for room and board, and associated luxuries such as having their laundry done, their meals cooked and being chauffeur driven as riveting social life demands. If your child can’t afford to live elsewhere then domestic servitude, until loans are repaid, could be subtly employed as long as you are prepared to give them house room.

Loans to ones children will generally be in three forms. They could be money you have lent to your child in the expectation of repayment. These can be dealt with by the domestic servitude route.  They could be loans which the child has taken out in their own name for general spending or for auto purchases. These could be paid by the parent who in turn adds additional interest to their repayments so that the child learns a lesson, and again domestic servitude could be used as an example and as a condition of parental repayment.

Then there are the bugbear of students, the student loans which could well tie you into the equation is you co-signed a loan as guarantor. Where student loans are concerned if you as the parent know little about the process it is advisable to introduce your child to someone who is financially knowledgeable and can talk your child through what obtaining student loans involves.

Eighteen year olds are rarely equipped with enough financial know how to understand what taking on loans fully entails, and may borrow too much with no specific plan of how to repay the loan. If your child is considering a college degree and thus preparing to take on the burden of student loans encourage them to read widely about the subject, discuss it with financial aid officers at the college they plan to attend and ask grown ups with good money sense to speak to them.

It is no use waiting until the student child graduates with no plans in place to repay the debt and without the necessary earning power to do so, and then be faced with a problem of non payment. Your student children should be made aware that student loans are non dischargeable and that defaults will result in a ruined credit reputation.

If you have acted as co-signer on a private student loan then the simple fact is if your child does not make repayments then your own credit rating will suffer, and you are equally liable for the payments. In actual practice you are more likely a better bet for the lender to pursue than your child, and you should expect to either bring the loan up to date or suffer the consequences. Statistically over 80% of co-signer loans are left for the co-signer to deal with, and if your child fails to address the repayments then their burden is yours. You can make your child aware of the problem they have caused and how it has in turn affected your credit rating, but the reality is that those students who leave their student loan obligations to be sorted by their parents have probably skipped the family home and the resultant burden of debt you take on will most likely cause the family to fragment.

The bottom line is that parents who co-sign for their off springs loans should only do so if they are aware their children have a strong sense of fiscal responsibility and you trust them to honor their loans. Co-signing has far more direct impact on the parents where loans are concerned than those loans a child takes which do not involve the parents. If you still have all this to look forward to as a parent then it is never too early to teach the value of good financial habits.