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Feb 23, 2024 | 5 min read

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Aditi Patel

10 Best Student Loans Editor

You have a teen ready for college, and you might be wondering about the best way to help them get through their college education. Should you co-sign a student loan, or directly give them the money, or is your financial advice going to be sufficient?

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Planning for college is an exciting moment for a lot of young adults but it also needs a lot of planning in terms of finances. The cost of a college education has risen since a lot of us have graduated. In fact, families paid $30,017 on average for college fees in the 2019-2020 academic year as reported by Sallie Mae. These numbers are making college more financially challenging than many originally perceived. Even the students who receive grants, government loans, and scholarships, may find their funds short.

Parents want to support their kids as they reach goals in life and some goals would need a college degree. Now the big question is, what is the best method to pay for college? Should you, as a parent, pay a portion of the college fees? Should you dip into your savings or apply for a loan? Does cosigning a loan sound like a viable choice or would you rather send your kid off to college with financial advice?

Kevin Walker, CEO and Founder of Collegefinance.com, tells us that it is difficult for both parents and students to estimate the actual monthly payments from four years of education if the student takes out a loan, the parent takes out a loan, or both parents and student borrow together.

Walker recommends families keep track of the loans that they accumulate and the monthly payment obligations that result from these loans. This helps the parent and the student ensure that they are borrowing within a range that they can afford to pay back.

Below are three ways parents can help their kids plan for college and some aspects to consider before they make a final decision as a family.

APR starting at 3.59% ¹

If your kid has already applied for scholarships, grants, and loans that they are eligible for but still come up short, you might want to look into private student loans. Many students cannot get favorable terms for private loans when they apply by themselves. Since they have just graduated high school, college students do not have the credit score and income that private lenders ask for. But if a parent with a good credit score co-signs their loan, lenders can offer better rates. Co-signing a loan means you promise to pay if your kid doesn’t.

The biggest advantage of co-signing a loan is that your kids can access offers that would otherwise not be available to them. Also, as long as you make sure the payments are being made, the loan can help improve your credit score.

The downside is when your kid defaults on payments or files for bankruptcy and transfers the debt to you. If your child dies or becomes disabled, you may also be required to pay.

If the student is part of a loan, Walker suggests that parents should make it clear if they expect their kids to pay them back for their college education. There is no one-size-fits-all when it comes to borrowing and paying for college. Families can choose to cover college fees completely or they can also ask the kid to pay a portion or the full cost of college.

Let’s say the student fulfills the payments, your credit score will still be affected by the act of cosigning a loan. Loan applications require credit checks that will take 5 points off your score. This is not an issue if you are not planning to apply for another loan immediately. The loan that you co-signed will also increase your debt-to-available-credit ratio and debt loan.

APR starting at 3.59% ¹

If you have funds you can dip into, you might be offering to pay for a portion of college fees. This is the simplest way if you want to help your kids with the costs of college since you can avoid the stress of student loan applications. If you have a nest egg such as a savings account, you can simply pay the bills and that’s it. You and your kid will not be placed in debt, your credit score will not be affected, and you do not need to track payments.

Taking out a loan on your own may also be easier compared to having your kid apply on their own. Home equity loans are easy and quick to qualify for. If you do decide to apply for a home equity loan or a personal loan, be prepared to start paying as soon as possible. Unlike student loans, there is no deferral with these loans. Paying for your kid’s college bill may entail some academic expectations. What will you do when they do not reach these expectations?

Lastly, you should assess if you can actually afford to shoulder the bill or even a portion of it. You would also need to grow your retirement fund and have emergency funds you can dip into before you sign a check for your kid’s college fees. College students have student loans to rely on but retirees do not have retirement loans.

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Financial advice is useful whether you’re paying for your kid’s college bill or not. You can advise your child to acquire as many college credits as they can by enrolling in college-level classes while they are in high school. This can help them develop their interest and skills to qualify for grants and scholarships.

Some high school students also choose to go to a community college to earn credits. Parents can advise students to compare costs for different colleges and universities. The most expensive places are not always the best ones and you will find that costs differ greatly.

You can also encourage your child to look at different avenues to prepare for college, whether that’s saving or working to earn money, preparing for scholarship requirements, and researching private and federal loan options. Sallie Mae reminds students to file the FAFSA to ensure that they do not lose out on financial aid worth thousands of dollars.

For parents and students who are looking into private loans, check out Earnest, an online lender that recently started offering private loans. College Ave is another company we can suggest. This is an online marketplace that can help compare offers from multiple lenders.

APR starting at 3.59%²

There is no set process to help your kids who are going off to college. This all depends on the circumstances and needs of your family. You can apply one or a combination of the advice we mentioned above so that you don’t risk your retirement plans and financial stability just to be able to send a kid to college.