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Student loans pose a significant burden on many young adults. According to a recent US study, the average student loan balance is $37,574, with the overall average sum reaching $39,590, including private loan debt. As a parent, you are likely aware of the increasing college costs and considering helping pay off your child’s student loan. While this decision may affect your financial situation, you can apply some tips to help your child settle their student loans. Below are five ways you can pay off your child’s student loans.
1. Schedule Automatic Payments
Setting up future billing from your savings or checking account is the simplest approach to assist in managing your child’s student loan debt. You may miss a payment or two due to your busy schedule. However, repeated missed payments can result in late fees and blemishes on your score. That is usually the case if the loan is in your name or if you were a co-signer.
2. Follow the Tax Rules
If you assist your kid in repaying student loan debt, you may be required to pay gift tax and submit a gift tax return next tax season. For 2023, a gift tax is applied to the giver and any donations exceeding $17,000. However, this is not applicable if you were a co-signer and assisting in repaying it. Loans are not exempt from gift tax, yet tuition is. Therefore, double-check current IRS restrictions regarding paying student loans in installments before deciding to assist.
3. Concentrate on your high-interest loans
Examine all your debts, from car loans to house loans, and credit card debt, and concentrate on settling those with the greatest interest rates. For instance, you should prioritize paying off your credit card if the interest rate is 15% while your child’s student loan is 6%. Additionally, private student loans often have greater interest rates than government-funded ones. Therefore, consider private debts first when prioritizing payments. Contributing an additional $50 or $100 every paycheck to those higher-interest loans can assist in the long term.
4. Take a look at your life insurance
A life insurance policy can offer huge relief in the case of the policyholder’s passing, but you cannot use it to immediately pay off student loans. The policy’s death benefit might offer financial support to relatives, including settling living expenses and others like educational loans. Also, certain life insurance plans may have a cash value provision that may be borrowed against and used to pay off college loans. However, it is critical to thoroughly analyze the ramifications and potential expenses before borrowing against the policy. You may check out the National Life Group reviews to learn more about their policies and applicability in this case.
5. Contribute to your child’s student loan payments
Matching your child’s payments is one of the most effective strategies to help pay off student debt. For example, you can pay simultaneously each time they do, or you may alternate payments so that you pay every two weeks. Other effective ways include making payments while in school, paying under the gift annually, or helping with other costs such as utility, rent, or grocery shopping. This way, your child may focus more on paying down on their loans and greatly cut interest costs during the loan’s term.
