To pay or not to pay...kids student loan question

[tractor]

Quick background, when my wife and I graduated from college, neither of us had student loans. Her due to a poor family, great grades, and an incredible work ethic. Me due to an educational trust left by my grandfather. No student loans help set us off on an amazingly stable future.

Fast forward to our two children going to college. College cost more than we could cash flow, so both were required to take out student loans. Both are now gainfully employed, making decent money and faithfully paying off their loans at a record pace.

My wife and I both have pensions, healthy 401ks, etc. Very little debt, and have about 10-years left of our working lives...as we are at the time in our lives where the previous generation is passing on, both of us have received (or will be receiving soon), healthy inheritances. We don't need the money, which will only be used to further pad our retirement funds, potentially leaving more for the kids when we pass.

I'm considering taking 50K and paying off both of the kids student loans in full, so they can start building a strong financial base, but I'm having reservations since they are doing so well paying them off on their own. However, I can't help but feel guilty based on my college cost experience.

What do you think? Should I encourage them to keep plugging away and feel the sense of accomplishment that comes with paying their loans, or should I take care of all their debt now and give them extra room to breath?

[thyme4change]

I am funding my kids so they will start with no loans, so I am partial to that perspective.

However - if you want them to have that sense of accomplishment, you could plan on gifting them a hefty sum for a house or to start a business. It would be a wash fiscally, but not emotionally.

[tractor]

Two additional data points, when my mother passes (who knows when 5-10 years?), she has left her entire estate to her grandkids. They will each have enough to buy a house.

And two, I'm rather annoyed about the high interest rates they are being charged on their loans and that's one of my motivating factors.

[azucena]

Very interested in this topic...

tractor - can you add some high level numbers? What are loan balances and interest rates? How much did you help pay for already? No plans to retire early? 

In my ideal world, we are planning to cashflow up to $30k/year but if they need loans after that, I could see helping them pay them off quickly and then having them pay me back without interest.

[minnesotapaintlady]

I would pay them off.  You don't need the money, they sound like financially responsible adults and there is just as much feeling of accomplishment to be gained by putting the money into investment accounts every month instead of paying down debt.

[Cookies Galore]

I say go for it. Your kids seemingly have a good work ethic and did what they needed to do, and you giving them a leg up into adulthood won't hurt them. Not having that loan over their heads for the next who knows how many years is a huge gift and will enable them to increase their retirement savings or sock more away in general savings.

The days of low low-interest federal loans you can pay off in 10 years or less are over. Why make your kids continue with the albatross if you have the means to allow them financial breathing room? This idea that you need to suffer to appreciate what you have is bonkers.

And rereading your OP, both you and your wife had the absolute fortune of not having student loan debt, but helping your sons have that same opportunity is somehow bad because they won't get the feeling of accomplishment for paying off their loan? That is a silly argument. Does your degree not count because you didn't have to spend 10-20 years paying off a loan to prove something to your parents?

[saveinla]

We paid off the loans for our son. My father was mad that we even had him get the loans.

[tractor]

High level, one son owes @ $15k, the other (graduated 2-years later) owes @ 35k. Both loans are with private lenders, started at 4% and are now hovering @ 10%.

We have been paying @ $500/month towards both of them, and the boys each kick in $500 of their own money. Both make between $70k and $90k a year, no other debt.

I'm planning on just paying them off, but still feel a little guilty not continuing to save for retirement, since you can't borrow for it. However, they are both incredibly frugal, and will be able to accumulate more reserves if they don't have the extra payment.

[tractor]

No plans to retire early, I love my job and since it's not physically demanding, could do it indefinitely. Very stable job in a very stable industry. I am blessed.

[NastyWoman]

We funded our kids college degrees and I know DS2 will do the same for his kids if needed - this is not certain as they live in Germany where college is currently free. That might change before they reach that age though as they both are under 10yo (for 1 more month LOL). Those two are my only grandkids so it is not like DS1 would not pay for his kids, he just doesn't have or want any.

[souldoubt]

Have you been helping both of them pay since they graduated and/or would it be a point of contention if the older son felt like he got less help?  I only ask because the older son owes less.  If I was either of them I'd be thankful for any help but I've seen far less money make people act irrationally.  Regardless if you can afford it I see nothing wrong with helping out.  They both got through college, have jobs, make decent money and seem to have made paying their loans off a priority.  Getting out from under those would allow them to get on stronger financial ground whether it's saving for retirement, a house or whatever their goals are.

[tractor]

I have been helping since they both graduated, so all things are as equal as they can be.

[minnesotapaintlady]

ugh...10%?  Screw that.  Pay them off for them.  Christmas...DONE. 

[jerseygirl]

Yes pay the loans! We are of opinion to gift family now , not money when we’re gone.
We cash flowed our kids, helped or helping grands so they will have no loans.
Also plan helping when they start buying houses.
We’re fortunate as you are to have responsible kids/grands

[azucena]

Yeah, at 10% interest, I'd want to help clear them ASAP.

You could consider paying them off and then having each pay you x/month for y and z more years with zero being a bit longer for the younger if that helps even it out.

I'd also make a point to tell them that this payoff helps them start contributing to Roths and show them some amortization tables on what that could do for them.

[schildi]

How will you address the difference between the balances? One gets $15k, the other $35k. That's a tough one if you ask me.
Besides that, I agree with the others: pay them off!

[MN-Investor]

I'm another vote for paying them off.

Remember back to when you graduated from college debt free? You could immediately start saving for a house, for raising a family, for vacations with your family, for a future retirement. All of those things are more expensive now, and having to pay off student loans just makes it all the more difficult. They've already proved that they are responsible adults. This just aids them along their paths.

[Opti]

Dec 4, 2023 14:51:10 GMT -5 tractor said:

Two additional data points, when my mother passes (who knows when 5-10 years?), she has left her entire estate to her grandkids. They will each have enough to buy a house.
My parents 
And two, I'm rather annoyed about the high interest rates they are being charged on their loans and that's one of my motivating factors.

You could also choose to help at a later date. Their cohort has a bigger percentage in student loan debt and that is not just because of college costs or greedy banks. Its a combination of factors.


Having no student loan or college debt was unlikely for me and my sibs. I come from a low middle class to middle middle class upbringing. My parents divorced when I was in college getting my bachelor degree. My sibs were in HS at the time.


ETA - I only used student loans for my bachelor's. When I chose to go for my master's since the job pickings were low in 82, I was able to work university jobs, especially teaching assistant to cash flow that degree. I also lived in that state by then and got the lower resident rate.

[seriousthistime]

Our plan with the kids was to cash flow the college expenses since I was returning to work when our oldest graduated from HS. We wanted them to take out any subsidized student loans they would qualify for with the promise that WHEN they graduated, we would pay off the loans, either according to the payment schedule or as a lump sum.  We wanted them to have skin in the game and had seen many of our friends' children dabble in higher education without a real plan and then drop out.  They did not go to schools with comparable costs which meant we ended up paying much more for DD's education.

Your kids have graduated and are successfully launched.  If it's not a stretch for you, pay off their student loans.  If you'd had the money at the time, you would have spared them having to take out loans.  

[minnesotapaintlady]

Dec 5, 2023 8:28:52 GMT -5 seriousthistime said:

We wanted them to take out any subsidized student loans they would qualify for with the promise that WHEN they graduated, we would pay off the loans, either according to the payment schedule or as a lump sum.

I had my son take out all the subsidized loans offered to him as well.  It wasn't so much to make him have skin in the game as it was to let his college savings stay invested an extra 4 years. In hindsight it may have been better to just pay immediately as his fund kind of plummeted since sophomore year.  It's starting to recover now, but still quite a bit less than it was.  He'll graduate with about 19K in loans this coming May and currently the fund is 7K less than at it's peak (actually 14K after yesterday, but I'm hoping that drop was just the Dec distribution that hasn't been added in yet).

[tallguy]

I might go a different way.  Instead of paying off their loans, why not gift to max their Roth contributions each year instead?  If you merely free up money for them by paying off the loans, they could do anything with it.  That's fine, but it doesn't necessarily accomplish your goal of them starting to build a solid future.  Maxing a Roth several years before they might otherwise do could be worth hundreds of thousands of dollars later in life.  It would also get around the difference in loan amounts and be equal for both, if that is an issue for you.  I also think it is psychologically better for them to continue paying off the loans themselves since they are doing well at it.  It will be an accomplishment to be proud of when they finish.     

[busymom]

I agree that paying off both loans with such different amounts might be a problem with your kids later, as in "Mom & Dad always loved you more".  I do like the idea of setting up retirement accounts for both of them, with equal amounts of money.  Then if they choose to "raid" their accounts to pay off their loans, it's their own choice, and they've been treated equally. 


I did set up a retirement account for DD as a gift.  It planted the seed for her to save for retirement, which she now does regularly without me harping about it.  

[minnesotapaintlady]

I wouldn't worry about the different amounts personally. There could be so much going into that.  Different college choices, different costs, different interest rates, different scholarships, younger could have had to take more loans than older to begin with maybe because they gave more to older? 

They're both doing well with good paying jobs.  I know my boys would have zero cares about keeping tabs like that.  My oldest knows what he doesn't use from his 529 rolls to his brother and he's still paying a lot of the costs out of his own pocket by working.

And Tractor has been paying $500/month extra on each kid's loans.  If he's been doing that since the get-go the older one has gotten $12000 in extra help already just due to starting payoff 2 years earlier. 

[steph08]

I'd pay it off if you have enough money to feel comfortable doing so. 

This is a big fight DH and I have - I want to pay for the majority of our kids' college and he doesn't. Background: my parents paid for my college and his did not. 

So, I save what I can and we'll see what happens when they go / graduate (they're 7 and 9 now). 

[The Walk of the Penguin Mich]

Dec 5, 2023 3:00:18 GMT -5 Opti said:

Dec 4, 2023 14:51:10 GMT -5 tractor said:

Two additional data points, when my mother passes (who knows when 5-10 years?), she has left her entire estate to her grandkids. They will each have enough to buy a house.
My parents 
And two, I'm rather annoyed about the high interest rates they are being charged on their loans and that's one of my motivating factors.

You could also choose to help at a later date. Their cohort has a bigger percentage in student loan debt and that is not just because of college costs or greedy banks. Its a combination of factors.


Having no student loan or college debt was unlikely for me and my sibs. I come from a low middle class to middle middle class upbringing. My parents divorced when I was in college getting my bachelor degree. My sibs were in HS at the time.


ETA - I only used student loans for my bachelor's. When I chose to go for my master's since the job pickings were low in 82, I was able to work university jobs, especially teaching assistant to cash flow that degree. I also lived in that state by then and got the lower resident rate.

The interest rate is 10%.  A later date is only going to make these loans more expensive.

[Rukh O'Rorke]

Why not float the idea to them as a potential and see what they say?

[pooks]

I would pay off the loans.  If you had the money while they were attending, you would have paid as they went.  This is just cleaning up that past obligation.  You are very lucky to be getting multiple inheritances.  

[haapai]

Did you start paying $500 a month toward both of their loans at the same time or did you start when each of them graduated? 

The difference in what they owe is a pickle, but less of one if you have been paying of the older one's loans for longer. 

[laterbloomer]

Starting young people off with no debt is how generational wealth happens. It actually makes way more sense to pay for these things when you are older, established and making more money. The trick is that each generation does it for the next generation. I have many Italian friends and the wedding gifts they get from their extended family are crazy by my family standards. One set of parents do the down payment on the house, the other set furnish it, grandparents buy them vehicles and pay for education, etc....it is amazing what a leg up this gives everyone.

[tractor]

Dec 6, 2023 10:19:02 GMT -5 haapai said:

Did you start paying $500 a month toward both of their loans at the same time or did you start when each of them graduated? 

The difference in what they owe is a pickle, but less of one if you have been paying of the older one's loans for longer. 

I've been paying on both since they graduated, all things being equal, they will both receive about the same. The older one held down a job and paid for a portion on his own. The younger choose the "no work during college" route. He has matured quite a bit since then and is currently stockpiling cash.

The question of fairness seems to be a common theme, I was never concerned about being "fair", and neither my wife nor my kids seem to care either. Maybe it's just the way we have been raised "fairness" doesn't come into the equation. Was it "fair" my brothers and sisters spent over 100k on their private school education, while I chose the public school route? Didn't matter to me, we all ended up debt free when we were done. I guess I've always focused more on the outcome than the process.

I appreciate all the feedback, the kids will likely have their best Christmas ever, not only are we taking them on a 9-day Caribbean cruise, they will be starting off the new year debt free....