<p>My son's Stafford loans are due to be paid. I have saved enough to pay them off lump sum. I am wondering if there is any downside to my paying these in full on his behalf. Would my son realize an advantage if I gifted him the money ($9000) and he wrote the check? I'm thinking that if he writes the check he might realize a tax break or it might allow him to bolster his credit rating?</p>
<p>You might stop by your local credit union (hopefully you’re already a member – these institutions exist to serve their membership – not shareholders) and ask about what is currently going into figuring out credit scores. </p>
<p>Here’s my thinking: you could set up an account with the 9K and have it automatically make a monthly payment to the loan – all of this in your son’s name. What your son gets from this is a worry free building of his credit record – which will come in helpful in the years ahead as he shops a car loan or, eventually, a mortgage. Sure, you’ll be paying the interest on the Stafford, but it is at a low rate. If he goes into, say a mortgage in six or seven years time, then an excellent credit rating could shave off many thousands over the lifetime of a mortgage loan. </p>
<p>There are several ways to pencil out your options. My suggestion is that you have a celebration pizza or BBQ out night to celebrate that this time you have some great options (not always true in life). </p>
<p>Go for a walk with S (if you can) and talk over the options (walking is super – no party is dominant and the blood flow to the brains can help sharpen thinking). </p>
<p>I don’t see how just a single payment to the loan boosts his credit rating (which usually has a “payment history” component – ie. ten on time payments of $100 is better than one $1000 payment) – but please talk to a banker/credit union staff member to make sure this is correct. Congrats on the savings and the graduate!</p>
<p>Our gift to our kiddos was repayment of their stafford loans for as long as we can do it. We deposit the money monthly into their accounts which are set up for auto withdrawals. Both argued with us about this but we told them to pay it forward someday. The realit is their loan payments are a drop in the bucket compared to their college cost parents. It was a nice gift for us to be able to give them.</p>
<p>If your son is not a dependent on your tax return, you can gift him the money. He can then use it to pay off the loans (I would pay it all at once … why rack up any more interest than necessary?). Whatever interest is paid off at that time, he can deduct on his tax return (you can’t deduct interest on his loans, so why not let him have the deduction?). If you were to pay it off for him, he wouldn’t be able to deduct any interest. The reason I pointed out the fact that this will only work if he is not a dependent on your return is because he can’t deduct any interest if he is on your return.</p>
<p>He will get a boost to his credit rating (worthiness) if he pays the installments in 12 months. So he would get a boost in his score after 12 months, then again I think in 36 months and then 5 years, 7 and 10. However, there is not much of a boost between 3,5,7,and 10 that would balance out the amount being paid in interest.</p>
<p>Figure out how much you would be paying in interest between year 1 and 3 and then 5. Basically you are buying a better credit score paid via your interest. It is much lower than a credit card and shows ability to pay an installment loan. As a car loan or mortgage would be.</p>
<p>Just like the algebraic formula used to determine “need” and a student’s EFC an algebraic formula is used to determine your credit score. Time is a variable (heavily weighted), paid on time (consistency) and your utilization percentage (outstanding debt vs. available credit…the lower the better) are all part of the equation. The more familiar you are with it the more you can manage your score. Some employers run your credit for a job.</p>
<p>A CC or 2 paid off every month would also develop a better score. Again 12 months and then 3 years…you don’t need to really go into any debt to build your score.</p>
<p>Sons/daughters did this in the beginning of their college careers and when son when to get his apt for med school, he did not need to give them any deposit, or last month’s rent. Just the pro-rated amount his credit was so good. Daughter and fiance just bought a house and new car and mortgage rate was extremely low, under 3% and car loan at 0% her credit was so good. Son is 23 and daughter is 24. </p>
<p>They carry no debt except small student loans, pay of CC every month and have credit scores close to 800.</p>
<p>Little steps for a longer period of time, low utilization and an established history.</p>
<p>Son’s peers in med/law school had to come up with a substantial amount in deposits/first/last month’s rent, higher % on cars and homes, and when he put monies in his credit union they gave him a higher percentage on his checking account.</p>
<p>Kat</p>
<p>Since the debt is in his name, I don’t think it matters who literally writes out the check…his credit will still be positively impacted. The name on the check is irrelevant to credit scores…it’s the name on debt that matters.</p>
<p>I would have him take a look at his credit report now and see if its reporting payments on time. My son took out a sub Stafford 3 years ago and it reports every month as paid as agreed even though he has never made a payment. If its already reporting a positive payment history there is no need to drag it out further and pay interest.</p>