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Thinking About Paying Off Your Child's Student Loans? Thumbnail

Thinking About Paying Off Your Child's Student Loans?

 Here are 5 Things to Consider

College tuition is currently at an all-time high. As of 2022, the average student loan debt is about $39,000 per student and the average monthly student loan payment is nearly $400. 

Another study shows that 50% of borrowers still owe at least $20,000 each after 20 years post-school. This means that their loans might even overlap with that of their future children.

Thus, it's no wonder parents want to help their children pay off their student loans as quickly as possible. Aside from this, it can also yield some benefits.

1. It breaks the loan cycle.

As a parent, you wish for your children to live a good life and make better financial choices than you. However, with student loans, they will be saddled with loan payments for more than two decades after graduation, which blurs the opportunity for financial stability.

If they themselves are paying for their student loans, they wouldn’t be able to set up or invest in education plans for their own children. Thus, the never-ending cycle of student loans will run for generations.

2. You are setting your child up for success.

Taking the burden off of them can help them focus on their studies and save money for their future.

With this, you may be convinced that paying off your child’s student loans is a great idea. However, there are a few things you should consider first, or you may end up compromising your own financial goals.

Here are five things to consider when deciding whether to help your child pay off their student loans.

 get ahold of your high interest debt

One of the first things you should consider before you pay off your child’s student loans is whether or not you have any high-interest debt. This could take the form of credit card debt or a personal loan, both of which usually have a high-interest rate. Generally, student loans feature a moderately low-interest rate (around 4%-7%) depending on the loan. Depending on the situation, it is wise to try to pay off your high-interest debt first.

Prioritizing debt repayment by interest rate can help you decide whether it may be a great idea to help pay off your child’s student loans. I recommend putting together a spreadsheet that includes all of your debt, the balance, and the interest rate. This will help compare and contrast your debt during this step.


Some parents may want to pay off their child's student loans but are afraid of triggering a gift tax. Luckily, there are a few ways around this tax.

According to the IRS, the tuition you pay for someone may qualify as a non-taxable gift. However, this is applicable only when the payment is made directly to the school or university. With that in mind, if your child has any student loans that were issued by the university, payments towards these expenses may be tax-free.

Another way to avoid this gift tax is to stay within the gift tax exclusion for the year. In 2022, the gift tax exclusion is $16,000. This means that each parent can give up to $16,000 a year ($32,000 total). As long as your gift stays within these parameters, you shouldn't have to pay a gift tax.

If you are worried about your gift being tax-free, you should talk to your CPA or a tax professional just to be sure.

a woman writing down

A common worry parents have is whether or not their child will be able to make student loan payments on time. If you have this worry, you should have a conversation with your child, as well as their lenders, to see if there are any repayment plans available. Most loans, especially federal student loans, offer repayment plans. This may give your child the option to increase or decrease their payment depending on their income.  

I recommend sitting down with your child to create a monthly budget. This will help to determine how much of their income will go towards their student loan payments each month.  

people looking for loan forgivness

In addition to student loan repayment plans, there are also some loan forgiveness plans available that your child might qualify for. A few examples of student loan forgiveness plans are Public Service Loan Forgiveness and Teacher Loan Forgiveness. You can view the qualifications for each forgiveness program at www.studentaid.gov.

In the wake of the COVID-19 pandemic, the government rolled out more forgiveness options, including COVID-19 Emergency Relief. Before you create a plan to help pay off your child's student loans, see if they qualify for loan forgiveness. As of this writing, the federal student loan repayment will resume on September 1, 2022.

arode to retirement

As important as it is to take care of your children, it's also important to take care of yourself. As you get closer to retirement age, it might make more sense to contribute to your retirement savings instead of your child’s student loans. Your children have long careers ahead of them to pay back their student loans. As a parent nearing retirement, your earning years are coming to a close. It’s important to prioritize retirement savings to ensure a comfortable retirement.  

During what you would like to be your last few years of work, I recommend creating a financial plan with an advisor. This can help to ease stress and help you smoothly transition to retirement.

Paying off your child's student loans is a generous thing to do, and in some situations, it may make sense. Before diving in completely, it's important to consider possible repayment plans, loan forgiveness, tax implications, and other debt and savings goals. If you are highly considering paying off a child’s student loans, I recommend reaching out to a financial advisor. They will be able to walk you through these five steps and can help to determine whether or not it may be a smart idea. 

You can also support your child, without necessarily paying for their student loans by:

  • Having them stay at home to save on expenses for room and board;
  • Helping them finance their necessities;
  • Referring them for gigs for added income; and
  • Providing guidance on navigating loan payments and interest rates, as well as refinancing.

 two people planning and talking

Talk to us today so we can find solutions for you and your child to break free from the financial strain of student loans. You can also follow us on LinkedIn and Facebook for more industry news, tips, and updates.

  1. U.S. Student Loan Debt Statistics
  2. Frequently Asked Questions on Gift Taxes
  3. Choose the federal student loan repayment plan that’s best for you.
  4. Student Loan Forgiveness
  5. COVID-19 Emergency Relief and Federal Student Aid

This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. You should consult your financial advisor, attorney, or tax advisor.  For additional information and disclosures, please visit our website at www.mbewealth.com.  MBE Wealth Management, LLC is a registered investment advisor