The total student loan debt in the United States reached a record high during the first portion of 2023. According to credit bureau data, student loan borrowers had a remaining loan balance of $38,787 on average. 10% of borrowers owed more than $80,000 in federal loans alone. This can be a stressful prospect for future students, but parents can help reduce student debt for their children. Parents don’t necessarily have to take on debt for their kids either to help out.
Here are some ways you can step in to help your child reduce their student debt as they head off to, attend, or graduate from college:
1. Teach Financial Education
Flickr user Pete
One of the most important things parents can do for their children is teach them financial literacy. Even if the child doesn’t plan on attending college, financial literacy can reduce stress, prevent major financial mistakes, help individuals plan for financial emergencies, result in more savings, and assist with improved budgeting strategies.
Many parents don’t want to burden their children with information about the bills, cost of living, and college expenses. However, these conversations are essential as they are crucial to financial literacy. Students with little to no financial education can be prone to high credit card debt in later years. In fact, poor financial literacy can cost a person over $1,800 on average per year, but 15% of individuals said that it cost them $10,000 or more in just one year!
By teaching your child financial literacy, you’re setting them up for success. The earlier you start, the better – even if it’s just helping them set up a savings account while they’re in elementary school. As they head into high school, it’s important to review any savings you currently have for their college expenses and help them understand what they will be responsible for during college.
Creating budget sheets for your current at-home budget and for potential college expenses can also help them understand the true cost of living and education, allowing them to make more educated financial choices in the future.
2. Complete the FAFSA Together
The Free Application for Federal Student Aid (FAFSA) is an important step in securing student aid and obtaining Federal Student Loans. For most students, parents will have to participate. Unless your child is 24 or older, the FAFSA will require your financial information. There are very few exceptions to this rule. Even if you don’t want to pay for any of their college, your support in completing the FAFSA is essential to securing financial aid for your student.
While students who complete the application may qualify for direct subsidized and unsubsidized federal loans, that’s not the only money on the table. The government uses this application for the Pell Grant and work-study approval – money that doesn’t need to be paid back except under certain circumstances. Parents can also opt for the Parent PLUS Loan if they wish to take on student loan debt for their child.
It’s not just the federal government that’s using this form. Colleges receive access to the completed FAFSAs, and can use them when awarding need-based grants and scholarships. Some states also use the FAFSA to determine state grant recipients.
3. Review Financial Aid Offer Letters With Them
When schools send out acceptance letters, they may be accompanied by a financial aid offer letter if you and your student completed the FAFSA. These are documents that explain how much it costs to go to the college and the different options, like grants, scholarships and loans, available to pay for it. However, there is no single format for these offer letters, and as a result, they can get confusing. It can be tough to determine the “best deal.”
Going over the must-know terms, such as “Cost of Attendance,” and the numbers can help students better understand what these letters mean for their financial future. We do recommend using our Financial Aid Offer Comparison Tool, though, as this will simplify the process for everyone. It could help you determine which offer is best in simplified, straightforward terms, so you and your student can make an educated decision about the cost of college.
4. Help Search for Scholarships and Grants
Scholarships and grants are free money* for college. Yet many awards go unclaimed as students just don’t know about them! While you can’t apply to scholarships and grants for your child, you can help them find awards they qualify for.
State grants are a great starting place for a majority of students and parents, for example. Almost all states have at least one program dedicated to making college more affordable within their borders, but each one has a different application method and some may require your participation.
There are also thousands of scholarships out there, but weeding through them can be a job and a half. Scholarship databases, like our Scholarship Search Tool, can help you and your student determine which awards they qualify for and how they can easily apply.
Your student should be doing most of the scholarship search work, but a little help never hurts!
5. Open a 529 Plan Or Other Education Savings Account
529 plans could be a great way for parents to help students reduce student debt – before they even take on that debt! They’re tax-advantaged savings plans usually started by a parent or other adult designed to help save for future education costs. 529 plans can differ from state to state, and you don’t have to open one in your home state – you’re welcome to open one anywhere. Research can help you determine the best route here.
There are other options to save for your future college student’s education costs, too. Coverdell Education Savings accounts, UGMA/UTMA accounts, Roth IRAs, education tax credits, brokerage accounts can be solid options.
6. Consider Encouraging a Part-Time Job
Part-time jobs in high school and college can be a great way for students to learn budgeting and financial literacy while also helping them pay for college expenses. One option is a work-study program if your child qualifies. These are granted through the FAFSA, and the student gets to work on campus or with a campus partner for a few hours a week. This money can then be used towards educational expenses.
Other, local jobs, especially in college towns, can be understanding of a college student’s schedule and will often work with the student to set hours that work within their class schedule.
Part-time jobs aren’t ideal for every high school and college student, but there are strategies to balance education, social life, and work. Many students even work full-time jobs to afford education expenses. If your student is interested in a job while they’re still in school, consider helping them flesh out their resume and practice good interview habits.
7. Cosign on Private Student Loans
In some cases, scholarships, grants, and federal student loans won’t be enough to cover the cost of college. In these cases, students may consider applying for private student loans. However, if your child hasn’t established a credit history yet, they will most likely require a cosigner.
Even if your child has already begun building credit, cosigning for their loans could offer them benefits. For example, with a qualified cosigner they could qualify for more favorable interest rates which may help reduce the total amount needed to repay.
Cosigning is not a decision to be made lightly. If your child isn’t able to pay back the loans, you will be responsible for making payments.
8. Make Small Payments While They’re in School
Making small payments while your child is still in school can help reduce their overall student debt. Payments for federal student loans can be deferred until after they graduate or leave school. And unless it’s a direct subsidized federal student loan, interest will start accruing immediately.
By making small payments, even just $25 a month, you can help them pay down the principal balance, resulting in less interest down the line. This can add up to hundreds or even thousands of dollars in savings in the long run.
College is expensive. Between tuition, books, room and board, and transportation, students can pay tens of thousands of dollars every year to earn a degree. Even if parents don’t want to be on the hook for their child’s student loans, there are strategies you can employ to help reduce your child’s student debt. By teaching financial literacy, completing the FAFSA, and searching for scholarships, parents can help set up their children for life after college.
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* While a scholarship does not have to be repaid, there may be other obligations associated with the scholarship.
Disclosures:
Citizens Wealth Management (in certain instances DBA Citizens Private Wealth) is a division of Citizens Bank, N.A. (“Citizens”). Securities, insurance, brokerage services, and investment advisory services offered by Citizens Securities, Inc. (“CSI”), a registered broker-dealer and SEC registered investment adviser – Member FINRA/SIPC. Investment advisory services may also be offered by Clarfeld Financial Advisors, LLC (“CFA”), an SEC registered investment adviser, or by unaffiliated members of FINRA and SIPC providing brokerage and custody services to CFA clients (see Form ADV for details). Insurance products may also be offered by Estate Preservation Services, LLC (“EPS”) or an unaffiliated party. CSI, CFA and EPS are affiliates of Citizens. Banking products and trust services offered by Citizens.
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