<p>My husband is proposing a loan with 6% interest to help our son through grad school. Our son is appalled that " dad wants to make money off me" but my husband feels that although we are comfortable financially at the present time he wants to teach fiscal responsiblilty and is concerned about retirement income in the future. I'm curious as to how other families deal with grad school expenses.</p>
<p>One thing that I would ask is if he is going to be paying interest to either you or a financial institution, would he rather be establishing credit for the future?</p>
<p>We're not at grad stage yet but your husband would have to pay taxes on the interest.</p>
<p>Turned the other way, your son is expecting dad to forego interest on the money he loans to son. </p>
<p>Are we talking about a lot of $$, so that the interest on the principal is substantial?</p>
<p>Well, in my opinion, it does sound like your husband is trying to make money off of your son. Since you're financially comfortable, I'd say a loan with interest meant to keep up with inflation is most appropriate. If you'd be losing a substantial amount in interest on the money yourselves, I can see asking for some compensation for that, but I don't feel comfortable if your husband is trying to supplement future income with this loan. As britbrat brought up, why not just take out a loan with a bank if he has to pay a high rate of interest?</p>
<p>sorry about the re submit post- my husband thinks he's doing our son a favor and that this is lower interest than he would get from a bank. I'm not sure if he is correct about this.</p>
<p>Does your husband want or expect to, at any point, make money off of the interest from the loan? Or is he expecting to break even?</p>
<p>Remember that this is the kid who will probably be choosing your nursing home...</p>
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I'm curious as to how other families deal with grad school expenses.
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<p>I would be so thrilled if my kids wanted to go to grad school. If I could afford to loan them money, I figure to be comfortable enough not to need to charge them interest, so I wouldn't. </p>
<p>Unless you fear grad school might be started but not completed, your student is already expressing fiscal responsibility by going to grad school to advance his/her education. </p>
<p>As for retirement, we watch out for our own retirement, too, but I can't believe that 6% interest on a grad school loan will significantly improve your life as retirees. What will it represent in actual fact -- a better motor on a motorboat? I'd rather see my kid get graduate training. </p>
<p>I'm for fiscal responsibility, just wouldn't try to express that message through a 6% interest expectation. It's too symbolic for my taste. </p>
<p>Also: don't education loans have slower and more generous repayment terms than you propose? Are you on par? </p>
<p>The only advantage to a family loan over a bank loan is that if he's unemployed for a spell, maybe you'd let the payments delay...in which case the bank teaches him "fiscal responsibility" better than the family.</p>
<p>What was S expecting/hoping for? -- for you to give him money, or lend it to him without interest? Big difference there, of course.</p>
<p>I wish we could afford to lend D money for grad school. She's taking out lots of loans, big ones. </p>
<p>I envy your ability to offer this, and I would say charging interest is ok and means S has skin in the game. However, I wouldn't charge him 6%. I'd probably tell him I'd be charging half that (and then maybe when it's time for payback, I'd "forgive" the interest, and maybe even some of the loan, IF I could afford to do so).</p>
<p>6% seems a little harsh but again, it's all relative. If indeed it is a burden to lend him the money, then your husband's argument that it's cheaper than a bank (ie financial aid loans) is true. But if you are comfortable enough to be lending him this money, I'd definitely do it for less than your H proposes.</p>
<p>We of course don't know your family dynamics and history, your financial situation, or what your son wants to study in grad school (e.g. art history vs. medical school). Regardless, there's the general rule of thumb when loaning money to a family member: don't loan more than you can afford to lose. Even with interest. Especially when one of the goals of offering the loan is to teach fiscal responsibility to the person who is going to be doing the borrowing. </p>
<p>Some parents do help their children with loans, some don't. Sometimes they charge interest, sometimes they don't, sometimes interest doesn't start accruing until the student is done with school and in the working world. Sometimes the parents surprise the student at graduation by telling them that the loans are forgiven. Some say that for grad school, the student is on their own. Some students are in programs that cover their expenses. Other options: going to work full-time to save up money for grad school, or going to work for an employer who will cover grad school costs.</p>
<p>If my kid needs money and I had it, I would give it to him. I would expect him to do the same for me. That's what it means to be a family. 1 year jumbo CD rate is less than 4%, your husband would have to pay tax on it. Your husband is making a spread on your son? Your husband is teaching your son to care more about money than family. When I was out of work many years ago, my brother called me to let me know he would wire money into my acct if I ever needed it. Never took him up on it, but it was nice to know that I wasn't on my own.</p>
<p>To answer your thread-starting question: Would you charge interest on a loan to help your kid thru grad school?</p>
<p>No.</p>
<p>Will there be a contract documenting the terms of the agreement, in case misunderstandings or disagreements arise later on?</p>
<p>"Would you charge interest on a loan to help your kid thru grad school?"</p>
<p>No.</p>
<p>I'd give them the money if I had it, and if I didn't, I'd help them get a loan. But I wouldn't set things up for future bad feelings.</p>
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<blockquote> <p>Regardless, there's the general rule of thumb when loaning money to a family member: don't loan more than you can afford to lose.<<</p> </blockquote>
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<p>Boy, I agree with this! And don't show up on Judge Judy if the son doesn't end up paying all or any of it.</p>
<p>That is the advantage of family loans (to the borrower): family doesn't run a credit check and family will be more understanding if you miss payments.</p>
<p>Not sure if this is for professional school, masters, PhD, but if it is PhD it ought to be primarily funded; if it is a masters there may be some funding and some student loans, if it is professional school then your income affects your sons package.</p>
<p>My D is in grad school with a partially funded, part student loans masters. We are having her take student loans and when she finishes, if we are able we will probably pay them off, but that is a probably, not for sure. In the meantime she has loans that are primarily interest deferred, so no one is losing interest. Can you son do this? </p>
<p>My DD was not the most fiscally responsible in UG, so we really want the full responsibility of life to be experienced by her: cell phone bills, car insurance, health insurance, rent, utilities, loans. She complains about the cost of being a grown up, but she is also proud of herself, she has qualified on her own to rent an apartment, she is not too far away so she gets some dinner and laundry a couple of times a month, but she is making her own decisions, including the amounts of loans to take, etc. </p>
<p>She is assuming she will pay it back, but once we see where she ends up we may do that if we are able, but she will have had all the financial learning on her shoulders and, if you were worried about your kids financial discipline or about the likelihood of him finishing, you would have that power not to be out the money if he did go off track.</p>
<p>We have another anticipating professional school, I will have to see the costs, packages, etc before tackling that one. I know my DH did not attend the professional school he wanted to due to his parents income precluding all aid except loans and loans back then were double digit, it just was not smart, but sadly they did not want him to pursue that profession and did not support it- that has always been a bothersome issue between he and his parents, even 25+ years later. :(</p>
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"Would you charge interest on a loan to help your kid thru grad school?"</p>
<p>No.
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I would not but we only have two kids to worry about. If we had a really large family, we might be more concerned about opening the "Bank of Mom and Dad." Or if lending the money was causing us a hardship, we might feel we could only loan the money if we charged interest.</p>
<p>If this is grad school-grad school, there should be chances to be a teaching assistant or a research assistant to help bring the cost down. I like somemom's post:
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My D is in grad school with a partially funded, part student loans masters. We are having her take student loans and when she finishes, if we are able we will probably pay them off, but that is a probably, not for sure. In the meantime she has loans that are primarily interest deferred, so no one is losing interest. Can you son do this?
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<p>Wow I'm in the minority here but yes I would. My kids will get to finish their undergraduate degrees with no debt. After that they are on their own and they know it.<br>
It is possible that I might have some money left after paying for both undergrad tutitions but if I did and they wanted grad school I would loan it. With interest. The six percent is below market value.
By the time a student finishes their undergrad degree they are old enough to be responsible for themselves financially. That's me anyway.</p>