College graduates are leaving school with a mountain of student loan debt — an average of $29,650, according to data sourced by Purefy. In a 2017 survey by TD Ameritrade, 19% of grandparents said they contributed to a grandchild’s college savings.
But what about after their grandkids leave school? Grandparents are certainly under no obligation to assist in paying off a grandchild’s student loan debt. But if you’re looking for ways to help in that way, there are a few ways you can accomplish your goal and expand your legacy for your loved ones.
The best ways you can help repay your grandchild’s student loans
Depending on your financial situation and how comfortable you are helping your grandchild, here are some ways to lower student loan interest, reduce their loan balance and more.
Help make payments
The simplest way to assist your grandchild might be to simply make payments toward their student loan balances. This can come in the form of monthly payments or a lump-sum payment. Either way, reducing your grandchild’s student loan balance can help them save on interest because the loan rate is applied to a lower amount.
It can also accelerate the process of paying down the debt, potentially saving your grandchild a lot of time and money.
Cosign a refinance loan
Refinancing student loans can potentially make a huge difference in your grandchild’s repayment plan. Depending on the situation, it’s one of the best ways to lower student loan interest rates and monthly payments. It can also give them some more flexibility with their monthly payments and how long it’ll take to achieve a zero balance.
But unfortunately, not everyone can qualify for student loan refinancing. If your grandchild is still new in their career and hasn’t had the chance to build a good credit history or earn a lot of money, you could essentially lend your credit and income profile to help them meet the criteria.
Even if they qualify on their own, cosigning the loan application can help them become eligible for the best student loan refinance rates lenders have to offer. Also, many lenders offer cosigner release programs that may make it possible for your grandchild to remove you from the loan at a later date.
One thing to keep in mind with cosigning is that the loan will show up on your credit report, even if you’re not the one making monthly payments. Also, if your grandchild misses payments, it would also impact your credit score negatively.
Offer an interest-free loan
If you have enough cash lying around that you can pay off your grandchild’s student loan debt, but you don’t want to give it as a gift, consider an interest-free loan instead. Your grandchild can use the money you give them to pay off their debt, then they’ll make payments to you instead of their lender.
Refinance their loans in your name
If you’re thinking, “go big or go home,” you could refinance your grandchild’s student loans in your own name instead of cosigning their loan application.
In this scenario, you would take over your grandchild’s responsibility for making payments, and the loan would no longer show up on their credit report. This situation would also provide all the benefits your grandchild would get if you simply cosigned their loan.
That includes an option for how to lower student loan interest rates and monthly payments, more flexibility and more.
Because this option is a little more extreme, consider it only if you’re certain you’ll be able to make the payments on your own without it affecting your retirement income. After all, there’s no such thing as retirement loans the same way your grandchild has student loans.
How to lower student loan interest rates while refinancing
If you’re thinking of cosigning your grandchild’s student loan refinance or refinancing the debt in your own name, here are some ways to figure out how to lower student loan interest:
- Shop around: Take the time to compare student loan refinance rates from several lenders before you submit an application. Each lender has different criteria for determining interest rates, so while your credit and income situation doesn’t change, you may be able to get a lower rate with one lender than all the others.
- Get a loyalty discount: Some lenders, typically big banks, offer loyalty discounts to people who already have a relationship with them. Check with your bank to see if it offers a loyalty discount and what it takes to qualify for it. These discounts typically knock 0.25% off the interest rate, so keep that in mind as you compare student loan refinance rates.
- Set up automatic payments: Many student loan refinance lenders offer a 0.25% discount on their interest rate by simply setting up automatic payments. The arrangement makes it more likely that you won’t miss a payment, preserving your credit score and ensuring the lender gets its money.
You may not be able to get all the discounts some lenders provide, but taking the time to shop around will make it easier to ensure that you or your grandchild is getting the best deal. To save time with this process, use the Purefy rate comparison tool, which allows you to compare loan offers from multiple lenders side by side with just a soft credit check, which won’t impact your credit score.
The bottom line
If you’re looking for ways to help your grandchild with their student loan debt, there are several opportunities available. While some require very little involvement on your part, others will take a lot more time and effort.
Before you do anything, take stock of your current credit and financial situation to see if it’s even feasible to help your grandchild with their student debt. If doing so puts your financial security at risk, it may not be worth it.
If you’ve made sure that you can afford it, carefully consider all the different ways you can help your grandchild, and pick the one that works best for the both of you. If refinancing is on the table, be sure to shop around and compare student loan refinance rates and other features, so you can maximize the benefits refinancing can provide.
Above all things, communicate with your grandchild to maintain understanding and trust between you.