Most articles on this website are directed toward individuals who borrowed student loans to pay for their educational costs. However, some people are fortunate enough to have parents who will pay for college and graduate school for their children. Some parents are wealthy enough so that they are able to pay for the educational costs of their kids without ever requiring their children to pay them back. However, other parents expect their kids to pay them back for paying educational costs. In many instances, repaying parents for fronting educational costs can create tensions between parents and their children.
It is generally much better to repay parents than to repay a student loan lender. Typically, parents do not charge their kids interest, so students who are fortunate enough to have such an arrangement can save a ton of money in interest payments they do not need to make. In addition, a parent is much more likely to be forgiving if a borrower is dealing with a hardship that temporarily prevents them from repaying educational costs. Furthermore, parents oftentimes provide their kids much more favorable repayment terms than a student could obtain from a student loan lender.
However, there are many issues that arise while repaying parents for fronting educational costs. As I have previously mentioned in prior articles, I did not receive any help from my folks during my student debt repayment saga. However, I have received many emails from parents ever since I started Student Debt Diaries, who tell me about financial issues they are having with their children. Some parents did not have explicit agreements requiring their children to repay student loans, but now find themselves struggling to fund their retirement because they paid their kids’ educational costs. These parents would like their kids to assist them financially, since the parents helped their children, and now the parents themselves need financial support.
There are also a number of parents who have explicit agreements with their children about repaying parents for fronting educational costs. Most parents do not have such arrangements in writing, and I understand why. It might seem somewhat heartless to memorialize a repayment agreement in writing, and there is typically much trust between parents and their children. However, many parents have told me that they are having difficulties with unwritten promises to pay parents back for fronting educational costs. Usually, this is because there are disagreements about the monthly repayment amount and other terms.
If parents expect their kid to repay them for fronting education expenses, it is important to make this clear before paying any educational costs. It is unfair for parents to expect that their kids will pay them back for educational expenses at a future date when their children had no idea at the beginning that this was the expectation. Indeed, if children thought that they would have to repay their parents for fronting educational costs, they might have made different decisions about where to go to school and what degrees to obtain.
In addition, it is important to agree what any repayment terms will be before a parent fronts money to pay for educational costs. This should include how much a student must repay their parents each month and for how long. Parents and their children should also agree if there will be any grace period after a student graduates, during which time the student does not need repay their parents, and any other terms that might affect the repayment arrangement.
Furthermore, it is usually not fair for students to repay their parents with terms that are worse than students could receive by taking out government loans or otherwise debt-financing their educational costs. I communicated with one student recently who is repaying parents for fronting educational costs so that she could pay for college and law school. This person’s parents wanted her to repay the entire amount she borrowed to earn her degrees, which was a hefty sum. This individual told her parents that under an income-driven repayment plan, she would only need to pay a set percentage of her income each month for 20 years. Her parents agreed to allow her to repay her debt under the same terms as an income-driven repayment plan, and this was likely the fairest outcome.
It is also worth mentioning that repayment agreements between parents and their children should probably be in writing. As a lawyer, I know firsthand how written agreements are more favorable than unwritten arrangements, but I understand how it can be somewhat cold for parents and their children to memorialize an agreement like this in writing. However, putting such arrangements in writing could avoid any disagreements and tension that may arise from repaying parents for fronting educational costs.
In addition, it is worth noting that some states may require parents to pay for the educational costs of their children if they are financially able to do so. Many states require parents to pay for these costs after a divorce or under other special circumstances. Student Debt Diaries may publish a more detailed article on this topic at a future date, but suffice it to say for now that parents may sometimes have to pay for their kids’ educational costs without being paid back.
All told, repayment arrangements between parents and their children can create much tension. Sometimes there is a disagreement about repayment expectations or the terms of such a repayment agreement. However, with some forethought, and by agreeing to the terms of the repayment arrangement before educational costs are paid for, you can minimize the possibility that tensions will arise.