Paying for Kid's College and Retirement?

Most parents want to do what they can to give their kids a great start in life. But is it smart to take on children’s educational debt with your own retirement around the corner?

As a rule, Joe Orsolini cautions parents regarding PLUS loans. The certified financial planner with College Aid Planners explains that the government does not consider a parent’s ability to repay the loans, so parents with modest incomes but good track records could take on more debt than they can afford.

For example, it would take 10 years and $846 a month or 25 years and $536 a month to pay off $70,000 in Parent PLUS direct loans from the federal government. It’s important to recognize that, like other student loans, PLUS loans are not dischargeable in bankruptcy.

While there are those risks, PLUS loans can help with cash flow for people who earn enough to pay out of pocket but not in a lump sum at the start of each semester. The problem, Orsolini notes, is when parents let children choose their schools and then go about figuring out how to pay for them. Instead, he says, the money discussion should happen long before applications go out.

“Parents need to let their kids know what they can afford to pay for college,” Orsolini says, “and they need to let them know early in the process.”