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Q&A: Paying Off Your Grandchild’s Student Loans

Paying off student loans might not be the best way to help your grandchildren financially.

Question: I’m thinking about helping my granddaughter pay off her student loan, but I keep hearing rumors about how the government might buy the student debt or the Federal Reserve might buy all the student loans. What are your thoughts?

Ric: There is no doubt that student loan debt is our country’s current credit crisis. There is now more collective student loan debt than credit card debt — about $1.2 trillion owed in student loans vs. $1 trillion owed to credit card companies. We also know that student loans affect a narrower segment of the population — those of college age, and those going to college or who have graduated or left college. Credit card users have broader age and income diversification.

Thus, that $1.2 trillion is largely owed by a narrow group: young folks trying to get started. And we’ve heard the deadly details: These young people are delaying buying homes and cars. They’re delaying marriage and having children because of the oppressive amount of money they spend repaying student loan debt. It’s a difficult job market for new graduates, making it harder for them to make those payments. No wonder so many are defaulting on their student loans, and Congress is trying to figure out what to do about it.

There are many public policy initiatives underway, such as forgiving the debt — but I doubt taxpayers (and voters) would agree to cover the $1.2 trillion cost.

Other options might be approved, however, such as reducing monthly payments, extending the terms, lowering the interest rates, or forgiving some of the debt if the student agrees to work in a certain occupation or in a certain geographic area (say, teach school in rural Kentucky).

I agree that writing a check to pay off your grandchild’s student loan might make you feel foolish if in the future that loan would have been accommodated in another way. So I suggest you let your granddaughter deal with her student loans herself.

If you want to help her financially, use your money in other ways, such as buying her a car, making a down payment on a house, helping her start a business or whatnot. Don’t use it on student loans.

And by the way, she’s lucky to have a grandparent like you — someone able to help financially, and willing.

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