Should I Help Pay My Siblings Student Loans?
Family debt is never easy to tackle, but if a sibling is struggling with a significant amount of student loan debt, it can seem even more overwhelming. Should you help pay off your sibling’s student loans if you are financially secure enough to do it?
When offering money to a family member, it’s important to remember that doing so could change your relationship, even if you are offering to help reduce student loan debt for a sibling.
First Thing’s First: Loans vs Gifts
The classic advice about loaning money to family members is “don’t.” Or at the very least, enter into the loan with the understanding that you may not see that money again. Of course, a lot depends on your unique financial situation and familial relationships.
However, if you find yourself without debt and want to help pay off your brother or sister’s student loans, you may want to first discuss specific rules of this new financial relationship with your sibling—that is, if you decide they need to pay you back at all.
For some people, clearing away your own student debt can suddenly leave you with extra cash every month. While you certainly can consider saving or investing, you may also feel strongly about helping a sibling who is struggling with their own student loan debt.
Chances are, if you are looking for advice about how to loan your sibling money for their student debt, you have already thought through the other options for that money and have decided you would like to help out.
Depending on your relationship with your sibling, older versus younger, responsible versus not-so-much, you might determine right away that it would be better to gift them the money, rather than loan it out to them.
More importantly, if you are giving a gift meant to be used only for a sibling’s student debt, why not write the check and mail it directly to their loan servicer, ensuring the money gets put toward their loans? Keep in mind that payments made in your sibling’s name could help them toward a student loan interest tax deduction—depending on their income and other qualifying factors.
However, if you decide that you’d like to help your sibling get out of debt by offering a loan, rather than a gift, whether without interest or with a longer payback period, it’s important to keep in mind a couple of rules for loaning family members money.
Putting Everything in Writing
Even if you trust your sibling and believe them to be a responsible person, it’s probably wise to set simple repayment terms in writing. There are plenty of basic templates online to use for a family loan, which generally share elements with any other lending contract.
An agreement to loan your sibling money for student loans could specify:
• Total amount borrowed.
• A repayment term and payment schedule.
• An interest rate.
• How to handle late payments or other issues.
You might think that entering into a more formal agreement with your sibling is unnecessary or will make loaning the money embarrassing for them or awkward for you both, but both of you will likely benefit from having simple terms laid out in writing upfront. Come up with a plan and find out what works best for your family situation.
Payments could be every two months, if you don’t mind an extended payback period, or maybe there is flexibility on the due date for payment. Plus, some of the smartest ways to pay off student loans may still apply if your sibling is repaying you for a loan.
Whatever you decide, both you and your sibling should review the agreement, and then just like any other written agreement, it’s a good idea to include your full names, addresses, and sign, date, and have it witnessed by a third party.
While it’s easy enough to agree to a student loan repayment schedule, the idea of charging interest is stickier when determining the details of loaning money to a family member. It might be that your sibling is turning to you for this loan because they’ve been refused by a traditional lender like a bank.
Maybe they don’t have the best credit score, or aren’t earning enough yet. If you are lending money outright to your siblings for college so that they do not have their own federal or private student loans, you can try matching at least the lowest recent federal interest rate on student loans, typically averaging around 5% .
But if your sibling is already in debt and looking to you for help, it’s easier to see why you might be inclined to loan them money without interest attached. But charging interest, even a small amount, can help incentivize on-time repayment and ensure you do get your money back, eventually.
It’s worth noting that family loans are off the books, so regular repayment will not help your sibling build up their credit history. But if they are using your loan to pay off a big chunk of their own student debt, it all could even out in the end. Bottom line: Consider the pros and cons before deciding to charge them interest.
What to Do if You Aren’t Paid Back
If your sibling starts ignoring their monthly repayments, it could lead to stress and resentment. The last thing you want is for a generous offer to turn into a point of contention in your family.
Of course, the benefit of being a family lender is that you might be willing to show more leniency if a payment is late one month, or is less than the minimum amount. However, don’t let yourself get trapped in a cycle of excuses for a sibling who refuses to repay your loan.
An important point to potentially address in your early discussions with your sibling is what would happen if your sibling couldn’t pay you back. It might be beneficial for both of you to decide what recourse there would be, if any.
Even if you are financially secure enough to assist your sibling with their debt, it’s understandable that everyone will have their ups and downs with finances, especially student loans. You don’t want your lifelong relationship to fall apart over a loan repayment issue.
If your sibling falls behind on paying back your loan, prioritize open communication between the two of you. Don’t shut them out or refuse to talk until they have paid. Good communication is the foundation of any great sibling relationship, whether money is involved or not. You are investing in your sibling’s future by helping them, so it’s important for you to understand if the loan will be paid off eventually.
Other Ways to Help Siblings with Student Debt
Even if you can’t spare the extra money to help a sibling who is in debt, there are lots of other ways to offer help. Especially if you are the older sibling and have already taken some smart steps to sort out your own debt.
Why not pass on your wisdom so your sibling doesn’t make the same mistakes? You could teach them some smart ways to accelerate their student loan payoff plan, or help them fill out the form for an income-driven repayment plan. Or you could walk them through the options and maybe you both will find a better solution for your family debt.
Refinancing your student loans is another option to discuss with your sibling. Refinancing could be a great option if your sibling (or even you!) are looking to lower their interest rate or reduce their monthly payments.
When someone refinances, the lender will pay off their current loan and provide them with a new loan—potentially with new loan terms or even a lower interest rate. Refinancing could help your sibling pay less interest over the course of their loan, or qualify for lower monthly payments which could free up room in their budget.
Whether you decide to tackle family debt with a gift or loan to help pay off your sibling’s student loans, make sure to enter into your new financial relationship with a professional plan you both agree to follow.
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
SoFi can’t guarantee future financial performance.