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Families: Here's How to Have That Student Loan Conversation

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You've probably spent some time thinking about where your child might go to college—and how to pay for it. Have you considered bringing them into the conversation? It's important they understand how paying for college works, especially if your child will take out student loans. Student loans can be a great tool to achieve a higher education, but they require thoughtful planning and management. Here are a few tips for talking to your child about them:

1. Be aware that a disconnect exists

When it comes down to who ultimately fronts the bill for college, there's a big disconnect between what teenagers and their parents think. In one study, only 16 percent of the parents surveyed were planning on paying for college, but 48 percent of students believed that their parents were going to pay. This lack of communication can lead to confusion and hurt feelings come high school graduation.

Beginning the conversation about paying for college early helps ease kids into thinking about their future and their finances. If you had student loans yourself, telling your child about your experience is a great way to both initiate and provide context to the conversation.

In addition to presenting the facts in a way that is non-judgmental, ask your child open-ended questions about what they want out of a college experience. It will help to have these conversations long before your child sets their sights on any one college or university. Come equipped to these conversations about college options with information about costs (which can be found on the schools' websites).

2. Discuss what your family can contribute

Once you've initiated the conversation and your child is comfortable with the concept of student loans, it's a good idea to discuss exactly how your family is capable of helping. You can do this in tandem with a learning session about all of the ways in which college can be funded: student loans, scholarships, grants, family contributions, and through work and/or work-study programs.

This would also be the time for a matter-of-fact discussion about both the value and the cost of college. College can provide great value, but that value comes with a cost (like most things). If it's appropriate, you can also talk about alternatives to college, like trade schools or certification programs.

3. Help them understand the math of loans

First, it's helpful to understand that there are two different types of loans: federal and private. Federal loans are issued by the government, and private loans come from banks, credit unions, and other lenders. In order to find out which loans are best for you, it's important to research their terms and consider your personal situation.

If your teenager is going to take out student loans, they should know exactly how they work. The most important concept that they need to understand is how interest is calculated. Interest is the cost of borrowing money, and although the interest rate is often a small number, the charges can add up by the time the loans are paid back. A good way to learn is to play around with an interest calculator, looking at the total interest costs of several different loan sizes (try $10,000, $30,000, and $50,000) at the different rates offered by competing lenders.

While you're experimenting with the interest calculator, take a look at how monthly payments shake out for different loan sizes. One rule of thumb is that a student shouldn't take out more in loans than what would be their expected starting salary. (You can find estimates by field of study here.) Educating your child about the repayment options—and their respective costs—will help them to make the best possible decision regarding their student loans.

4. Talk about what happens post-graduation

There's so much focus on getting into and going to college that the conversation often overlooks what happens after graduation. But it's important, and a few candid discussions can help teenagers grasp the "real life" responsibilities they'll need to manage in addition to their loans. This could include talks about bills and budgeting, saving money for bigger purchases down the road, learning to cook at home, and so on.

Just as sharing your own experience with your child is a powerful way to open the lines of communication regarding student loans and a great way to talk about what life is like after college is over. If you had (or have) student loans, you've likely learned quite a bit from the process and have unique insight into how student loans affected your life after graduation. Are there any additional tips you wish you knew when you graduated from school? What would you do the same, or differently?

The conversation about student loans and paying for college isn't an easy one, but it will make a world of difference in your child's life. By starting the conversation early, providing pragmatic information on the facts of college and its associated costs, and positioning yourself as a welcoming source of information, you'll put your child in the best possible position to succeed in college and beyond.

Click here to learn more about how your children can pay for college.

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