When both parents and kids in one family have student loans, they may benefit from a game plan to manage the debt and the stress that can go along with it. Perhaps the student is still in college and the parent is reaching the end of their payments. Or maybe the parent is earning a degree, and the child with student loans has just graduated and is living at home.
Whatever your situation, there’s a silver lining when parents and kids both have student loans. You can work together toward the same goal: paying them off in the most manageable way possible.
Here, you’ll learn about the financial impacts of student loans, repayment strategies, how to prioritize financial security, and how to support each other. Being in debt can be hard, but discovering your options is a solid step forward.
Table of Contents
Key Points
• Families with multiple student loans can benefit from open communication and shared planning.
• Listing each person’s loan balances, types, and interest rates provides clarity for repayment strategies.
• Budgeting together helps manage debt while maintaining financial stability and preparing for future goals.
• Borrowers can explore repayment plans, consolidation, forgiveness options, or refinancing, depending on their needs.
• Supporting each other emotionally and financially can make navigating student loan debt more manageable for both parents and kids.
Understand the Financial Impact
Student loans can have several impacts on people of any age. The need to make monthly payments impacts your budget, and the total amount you owe affects your debt-to-income ratio (also known as your DTI), meaning the amount of debt you carry versus your earnings. This can make lenders less likely to offer you loans or credit or to do so at the most favorable rates.
Because of the restrictions on your finances, student debt could also affect your long-term goals, such as:
• Purchasing housing, including renting an apartment or qualifying for a mortgage
• Getting married
• Continuing your education
• Building long-term savings
But keep in mind that plenty of people have student loans and still achieve these goals, whether they delay their plans or find a way to move forward despite their debt. People without student loans may also have debt due to credit cards or a hard-to-pay mortgage. Know that you’re not alone in facing financial challenges.
If student debt becomes unmanageable, it can have serious consequences. Defaulting can make you ineligible for federal financial aid, lead to reports to credit bureaus, impact your credit score, and result in paycheck garnishment.
Of course, you want to avoid these scenarios. If several family members have student loans, it’s wise to start by having open communication between parents and kids. Take the following steps:
1. Talk with each other. Don’t sweep the topic under the rug. Talking about it helps you share knowledge, support each other emotionally during a difficult time, and find ways to tackle your debt.
2. Total it up. Identify the total student loan debt for both parents and kids. Break it down to see how much each person owes and what types of loans they have — federal or private, high interest rate or low interest rate. Find out when the loan interest accrues and map it all out so you can see exactly what’s going on.
3. Explore the implications of student loan debt on future financial goals. Write down your future financial goals and consider how student loan debt will affect them. This can help you create a clear plan for moving forward.
4. Budget together. Finding a budget that helps you manage and track your finances is crucial. Learn about different budgeting techniques (including apps provided by your bank), try them out, and choose the system that works best for you.
💡 Quick Tip: Often, the main goal of refinancing is to lower the interest rate on your federal or private student loans by taking out one loan with a new rate to replace your existing loans. Refinancing makes sense if you qualify for a lower rate and you don’t plan to use federal repayment programs or protections.
Create a Repayment Strategy
Next, you can create a repayment strategy. Both parents and children can follow these steps:
• Understand the loans. Do you all understand the terms of your loans, including the interest rate, repayment schedule, and implications of cosigned loans? Cosigning means that the parents signed to obtain loans on the child’s behalf. If a parent takes out a Direct PLUS loan, a loan made to a parent to pay for the student’s education. It stays in the parent’s name, and they cannot transfer it to the child. The parent is legally responsible for repaying the loan.
• Look into repayment plans. Will you stick with the Standard Repayment plan, or would a Graduated or Extended plan work better? Reach out to your loan servicer to find out if you qualify for an income-driven repayment plan (IDR). An IDR plan bases your monthly payments on income and family size. It can help ensure that you make manageable payments every month.
• See if you qualify for student loan forgiveness. If a government or not-for-profit organization employs you, you might be eligible for the Public Service Loan Forgiveness Program. If you have made 120 qualifying monthly payments, the federal government could forgive the remaining balance on your federal student loans, and you won’t have to pay them back.
• Consider consolidating federal student loans. Consolidating means combining one or more federal education loans into a new Direct Consolidation loan to lower your monthly payment amount or gain access to federal forgiveness programs.
• Pay extra toward the principal. The principal is the initial amount of money you borrowed. Generally, loan payments go first to any fees, then to interest, then to the principal balance. You can choose to pay more than your monthly minimum and instruct your lender to apply the excess payment to the principal. This can help speed up repayment and potentially lower the amount of interest you pay over the life of the loan.
• Consider refinancing student loans. You can also explore refinancing your student loans, which means replacing your current student loans with private student loans. This might enable you to get a simpler, single monthly payment that’s more affordable. But it’s important to know these two facts:
◦ When you refinance federal student loans with private ones, you forfeit federal benefits and protections, such as deferment and forgiveness.
◦ Refinancing with an extended term may lower your monthly payment, but it can increase the total interest you pay over the life of the loan.
This is a lot of information to take in. So, what’s the best way to manage student loan debt? Ultimately, it’s about finding the repayment strategy that helps you meet your financial goals while paying off your loans. Talk to your loan servicer about options and consider speaking with a nonprofit credit counselor who specializes in student loans.
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Prioritize Financial Security
What does it mean to prioritize financial security? Financial security means having the money to cover the necessities (food, water, and shelter), having a safety net such as an emergency fund, and having money stashed away for your future retirement. To be financially secure, you’ll need to balance making loan repayments with these other financial obligations.
You could prioritize and build financial stability by:
• Creating a budget: Creating a budget involves totaling up your income, subtracting your expenses, choosing a budgeting system like an app, and tracking your spending. Many experts recommend the 50/30/20 budget rule: spend 50% of your budget on necessities, 30% on wants, and 20% on savings and additional debt repayment.
• Putting together an emergency fund: Try to put some money aside for unplanned expenses or financial emergencies, such as car or home repairs, medical bills, or loss of income. The amount you need in your emergency fund depends on your situation, but three to six months’ worth of your current living expenses is a good rule of thumb. Creating automatically recurring transfers each day, week or payday period is a good way to make sure your savings grow.
• Setting long-term financial goals: Set some long-term financial goals, such as saving for retirement or achieving homeownership with student loans. Both parents and college-aged or newly graduated kids can do this with a financial advisor who can help everyone balance loan repayments alongside other financial aspirations.
Support Each Other
Paying off debt and staying motivated can be stressful. Supporting each other emotionally and financially is a big part of managing when parents and kids both have student loans. As you discuss your money goals as a family, consider creating a joint plan to help each other. Kids should remember that their parents still need support throughout this process, and the reverse is also true.
Reach out to the people who can support you, including your student loan servicer, a financial advisor, and, if necessary, a mental health provider. Support networks and resources can guide you through your journey.
Planning for the Future
Planning for the future may seem overwhelming while managing student loan debt. But you don’t have to go it alone. Consider meeting with a financial advisor to discuss how to balance the challenges of today (as in, your student loan repayment strategies) and the goals of tomorrow, such as putting away some funds for retirement.
It can be a good idea to have an objective, outside expert come in and evaluate your situation to help you create a family plan of action. You may feel like you can’t possibly save for the future while paying off your student debt, but a trained professional can often offer valuable guidance.
You may also be wondering how to save for future generations to go to college. It’s important that you secure your own finances, reach your long-term goals, and achieve financial freedom before worrying about future generations. After all, your grandchildren can borrow for college, but you can’t borrow for retirement. That said, you might discuss the possibility of setting up a college fund with a financial expert to see if it fits with your other financial goals.
The Takeaway
Student debt can be challenging on its own, but when two generations in a family are paying off loans, it can feel overwhelming. Remember, student debt is a phase, like paying off a car loan or mortgage. It doesn’t define you and won’t last forever. By supporting each other emotionally, budgeting carefully, and exploring repayment options, families can manage their debt and pay it off as smoothly as possible.
Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.
FAQ
How does student debt affect families?
Student debt can affect families in many ways, from stretching the family budget thin to making it difficult to save for long-term financial goals. However, families that devise a plan and explore their loan repayment options can successfully pay off their debt and work toward future goals.
What is the average student loan debt?
Federal student loan debt represents 90.9% of all student loan debt and averages $39,547 per borrower. The remaining percentage of loans are private student loans. Including both federal and private loans, student loan debt in the U.S. totals $1.833 trillion.
Are children responsible for parents’ student loan debt?
No, children are not responsible for their parents’ student loan debt. However, parents may be legally obligated to repay student loans on behalf of a child if they took out Parent PLUS loans or cosigned their child’s loan.
About the author
Melissa Brock
Melissa Brock is a higher education and personal finance expert with more than a decade of experience writing online content. She spent 12 years in college admission prior to switching to full-time freelance writing and editing. Read full bio.
Photo credit: iStock/Daniel Balakov
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