Have any of you done this? Know anyone who has? What thoughts do you have on paying for a kid’s school and expecting them to pay you a portion back? And I know the lack of wisdom in this in the obvious ways that pertain to doing any kind of “business” with family: how do you make them pay you back; how do you handle it if they are failing to; etc…
Brief background: we have a budget for our son of what we will pay, so I’m talking about the possibility of going over budget for a preferred school, but expecting him to pay back the overage.
Contact a professional and have them draw up a loan agreement. This needs to include the interest rate, terms of repayment, when repayment will begin, and penalties for not paying.
I would NEVER do this with my kids, if I had the money to loan them, I would pay for them to attend the college. I would not expect them to pay me back.
Think about the pitfalls…what WILL you do if your kiddo defaults on this loan repayment?
How much are you talking? $2000 a year? Or $20,000 a year? What will the total be at the end of the four years?
And to add to Thumper’s fine post- make sure your kid gets some credit counseling. It’s easy for a kid to think, “oh, I owe mom $550 a month, how hard can that be” without any sort of context as to how much people earn, the difference between net and gross, etc. Your kid may decide it’s not worth it.
If the school is more than the budget you gave him, why are you still considering it? That sort of defeats the purpose of having a budget. Do you have other kids? If you offer loans to one, it would only be fair to offer your other children the same deal. That sounds like it could be expensive.
I wouldn’t be able to have a formal loan with my kids. If I could afford the money, I’d just give it to them. And if I couldn’t, that school would be off the table. What are you going to do if he doesn’t pay you back? If you take any kind of formal action I think you’d damage his credit. Not a position I’d want to be in. If he’s injured or dies and can’t pay you back, can you absorb the loss? If not, I wouldn’t lend him the money.
If you loan him money…it IS YOUR MONEY. You may never see it for your retirement.
ETA…in reading your other threads, your student is instate for CA and applied to a number of Cal States. Has he been accepted? What other schools do,you think might be worth this extra money?
It completely depends on the kid. Is he/she financially responsible now? People don’t really change.
Both myself and my sister bought cars from my parents after we got our first real jobs. I bought mom’s old Honda for $8,000 and faithfully sent her $500 a month until it was paid off. I have always been a saver and in high school would save up my $1/day lunch money all Fall so I could buy better Christmas presents for everyone. Miss Pennypincher. I have always been this way.
My sister bought my Dad’s old car for $4000. And she sent him $400 a month for about 3 months, then couldn’t for some reason, then couldn’t again, then needed to use her tax refund for a vacation and dentist bill, then…well, he never saw any more payments and they forgot about it. My sister never saves anything. She spends and spends. She’s very generous, but she has no savings or money sense and all of her pockets have holes in them. She has always been this way.
Which kid do you have?
Editing to add: So many kids are of the mentality of “Well, I was gonna inherit it anyway…” Ugh!
Would any of you lend money to an adult child? Say, to start a business? Or for a house down payment?
I haven’t had to borrow from my own parents, and my kids haven’t borrowed from me (as yet.) So I have no opinion one way or another about the wisdom/logistics of parent-child loans. But I’d love to hear your take.
@Jesse’sgirl I’m skewing off of your post but will answer below Aside to @redpoodles, we must be related in some way.
My sister owes my parents $40K that was given to her in 1988. She was going to lose her house and had just started the paperwork for bankruptcy. My dad felt sorry for her and took out a second mortgage. Dad has since died and my elderly mother took over the payments and finally finished paying about 4 years ago. The family had an intense argument, whereby, the debt was “discussed” when my sister wanted another loan from our mother. My sister insisted that she had repaid that second; we reminded her that her own house debt was paid, but our mother had been “stuck” with the bill. She insisted that our mother now had dementia, but our mother kept every receipt. Sister has repaid $75 since that argument. Nothing else.
I agree that a loan between parent and child is different than a conventional loan.
Be prepared @jesse’sgirl because if you give/loan him money without a requirement for repayment, it ain’t never going to be repaid.
What is the point of getting a ‘real’ loan agreement? Are you going to take him to court? Get a judgment and file it as a lien against his future home? Reduce the debt to a judgment and garnish his bank accounts and wages? No, you aren’t.
If you want to lend him the money, just draw up and agreement that he’ll pay you $xx per month starting 3 months after graduation. If he doesn’t pay, then it is a matter of honor. If you have other kids and there will be an inheritance, you can all agree that any un-repaid amounts will come out of his share. An agreement between you and him is good enough for the will.
I’m all for it as long as you can afford to lose it if he doesn’t pay it back (without a grudge). My father bought me a used car as a teenager and drew up a payment plan with an amortization table at 14% interest (1980’s). It taught me a lot about budgeting and loans. He also did this for a friend of mine. Loans were paid in full. Our children need to learn this. If he really wants a particular school, and you can afford to pay it without any hardship but want him to realize the overage in a loan and he understands the cost associated with it I think its a good idea. They key is that it not be a hardship to you but more of a financial lesson.
@thumper1, the discussion of which school may ultimately be the best choice is another big subject…and one I intend to start a thread about. We’re dealing with so many apples and oranges issues. Small, big, urban, suburban, state, private, diverse, not, and then there is, of course, the issue of will he be able to graduate in four years from the in-state schools. Ack! Anyway, there are schools in and out of state that are options within our budget (don’t know about his reaches yet, the UC’s), but if the difference is like 6k per year…and there’s a higher likelihood of graduating in four years…
This is a helpful discussion. I’m glad for all of the replies.
I wouldn’t waste the money on a lawyer. If he didn’t pay you, would you really sue him to get a judgment? If you got a judgment, would you really go through the process of trying to get his wages garnished or sell off the debt to a collection agency? Even if you’re in the minority of parents who might answer yes to both questions now, would your thought process change if he had a wife and kids to take care of? If he decided not to pay you, I would treat the debt as uncollectible.
You definitely need some kind of loan agreement, even if it’s just something you draw up.
But really…everyone willmtske this more seriously if it is drawn up professionally, in my opinion.
If you choose to give your kiddo the money, maybe it will get paid back…and maybe it won’t!
We only make loans to family members that we don’t expect to ever see again.
@jesse’sgirl I totally get where you are coming from. With us it comes up in the context of co-signing for a loan. You are basically on the hook for those loans too.
the problems arise if you find yourself a few thousand short but it can grow as college increases each year. You have the problem of should I or should I not borrow the difference to allow my student to attend the top choice. Do you risk having regret by saying if only I had borrowed the money… How much is too much debt. Do you fall into the trap that so many parents before us warned us on. Like @thumper1 mentioned, is it $2K or $20K? $2K is a no brainer but $20K is a killer. Most likely you are somewhere in-between which makes it hard.
Just thinking that some schools may be “worth it” to him, but not worth our money (which we need for retirement).