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Just The Right Amount

Ways to help kids pay off student loans without bailing them out

More than 60 percent of parents say they are “very” or “somewhat likely” to provide some type of help to their children who are trying to repay student debts, according to a study from Discover Bank. But just because parents want to help their kids, doesn’t mean they should. Like anything, there are good ways and bad ways to provide financial aid to struggling kids. Below are some tips for helping college graduates without completely bailing them out.

Match the funds. One way to motivate your kids to pay off their loans quickly is to do it 401(k)-style by matching their payments. That way if they pay a bit more, you do too. Just keep in mind that strict rules should be in place first, like the ratio of the matching funds and guidelines for you withdrawing the support. Write those rules out beforehand so there’s no ambiguity.

Cover Until a Set Time. For parents who are able, paying the loan until a preset time can help kids find their financial footing. As always, be sure to set the parameters beforehand. For example, once they have a full-time job and two paychecks from that job, they take over the loan.

Give One for Every Three. The Wall Street Journal suggests that another option is to pay one month for every three that your kid pays. This method could offer some motivation to pay the loans, knowing that there’s a break coming eventually (but not too quickly).

Chris O'Shea

Chris O'Shea