As Back To School Season is among us, tune in to see why helping your children pay off their student loans may not be the best financial decision. Here are five things to consider presented by Laurence Hale, AAMS®, CRPS®. 🎓
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Welcome to You and Your Money. Empowering you to reach your goals with tips to help you Plan Well, Invest Well and Live Well. Today's episode features Laurence Hale, principal managing partner and chief investment officer at Weiss, Hale and a Zahansky Strategic Wealth Advisors. Now on to today's topic. Time for another edition of You and Your Money. Sponsored by Weiss, Hale and Zahansky Strategic Wealth Advisors. And joining us today, Laurence Hale, principal managing partner and chief investment advisor at Weiss Hale and Zahansky Strategic Wealth Advisors. Laurence, good morning to you. Good morning, Gary. Great to have you here in our studio in Putnam. We're coming up on graduation season, obviously, and a lot of parents are either getting ready to send their kids off to college or celebrating graduation from college. And these days, you sure can't think about college without also thinking about student loans. So if you're a parent who's considering paying off your child's student loans for them, well, Laurence has some important insights to share with you today. Laurence, tell us when it comes to paying off a child student loans, what should parents consider? Well, you know, I'm sure it's no surprise to anyone that college tuition is an all time high. And as of 2022, the average student loan debt is about $39,000 per student. And the average monthly student loan payment is nearly 400. It's pretty steep. So it's no wonder many parents want to help their kids pay off their student loans. But, you know, depending on your situation, that may not necessarily be the best thing to do. Why is that? Well, it really comes down to the question of your own financial needs versus the timeline of your child. So even though student loans can be a burden and your child has much more time to pay them off than you do to save for retirement. So unless your retirement savings are already at a place where you know you'll be able to live the life you want in retirement, you should prioritize saving over paying off your child's loan. So by the same token, if you have any higher interest rate debt that you own, you should prioritize paying that off before helping your child with their student loans. And generally, student loans feature moderately low interest rate somewhere between around 4 to 7%, depending on the loan. But the interest rate on things like credit card debt, personal loans can be a lot higher. So paying that off first can actually save you money on interest costs. So in addition to that, revolving debt balances like credit cards can hurt your credit score more than your student loans would hurt your child's. All right. So that makes a lot of sense financially, but it's hard for parents to not want to immediately jump in and help their kids, though, right? It is as a parent, you want to help your kids and that's where you need to make sure you have a sound strategy that's going to dictate how you're going to approach this rather than do it on an emotional basis. So remember, you can always jump in to help your kids later once you have the savings that you need for retirement or other goals. And you know, you want to consider that in the context of your overall estate planning. So if you prioritize the student loan debt first, that can easily throw you off from achieving your own retirement goals, as well as developing the wealth you want to pass along to them or other heirs through your estate. All right. Well, that makes sense. Let’s say, you know, you're not in a position to pay your child's student loans right now. Is there anything else you can do as a parent to help them out with their debt? Absolutely. And there's a number of things that you can do on a non monetary basis that can be very helpful to them. So if they're having trouble making their payments, it could be worth having a conversation with them as well as their lenders to see if there's any adjusted repayment plans available. Most loans, especially federal student loans, offer repayment plans that can be stepped up or down depending on your child's income. And this could allow them to comfortably meet their student loan obligations on their own, which will take the financial pressure off them while providing them with the peace of mind that you've helped them make some smart financial decisions as well. just make sure they're selecting the right repayment plan for their circumstances. And if you're unsure, it would be wise to to contact the financial advisor. All right. There are loan forgiveness programs available for certain professions as well, correct? There are. You know, in fact, helping your child find out if they qualify for any of those plans is another way that you can help. So, for example, there's student loan forgiveness options for students who pursue careers in the public sector like teaching. So a lot of good programs that aren't necessarily easy to find without some searching. And this is a great way that you can help your kids. And there's also the issue of President Biden's student loan forgiveness plan that's being decided by the Supreme Court right now right there. Absolutely. And this is an important point. The Supreme Court is expected to come to a decision regarding President Biden's student loan forgiveness plan by late June. So if the program is allowed to move forward, your child may be eligible for up to $20,000 in student debt forgiveness. And if you took a plus loan out of your on your own, in your name for their education, you may be able to opt for eligible for debt relief as well. So you can see all the details regarding eligibility as well as get updates about the Supreme Court's decision on the program at studentaid.gov/debt-relief-announcement. All right. Good to know. Now, let's talk about those parents who are in a situation where they can comfortably pay off their child's student loan debt. Is there anything that's important for them to know before they do that? There is, absolutely, Gary. And if you pay Your child's student loans off, you'll want to make sure you make the payment directly to the school or university. And don't give your child the money to pay it themselves. By paying the school directly. Your payment could qualify as a nontaxable gift. Whereas if you give the money to your child directly, it may be subject to a gift tax. So another way to avoid this gift tax is to stay within the gift tax exclusion for the year. And in 2023 the that exclusion is $17,000 per person. So that means that each parent could give the child up to 17,000 for a total of 34,000 for a married couple. And as long as your gift stays within these parameters, you shouldn't have to pay a gift tax. But of course, it's a good idea to talk with a financial professional about your financial circumstances. Excellent. And thanks so much for sharing that information today, Laurence. Student debt is a big topic. It affects a lot of people. Absolutely. And it's really a major factor in financial planning for most people, particularly those that are younger. And it really can be hard to balance it against your other financial priorities, especially for parents who want to help their kids. Like all of us. That's where it can be extremely beneficial to work with a financial adviser and anyone who would like to get started in creating a strategic financial plan to address the kinds of needs can feel free to get in touch with us at Weiss Hale and Zahansky Strategic Wealth Advisors. You can reach us at 860-928-2341 or schedule a complimentary consultation on our website at whzwealth.com. That brings us to the end of this episode. As always, thanks for listening to You and Your Money. and find even more episodes, videos and other resources at our website. whzwealth.com Be sure to come back next week for more tips to help you live fearlessly and pursue your financial and life goals. Until then, live well. Weiss, Hale and Zahansky Strategic Wealth Advisors offer securities and advisory services through Commonwealth Financial Network member FINRA/SIPC, a registered investment advisor. Fixed insurance products and services offered through CES Insurance Agency. They practice at 697 Pomfret Street, Pomfret Center, Connecticut, 06259. And can be reached at 860-928-2341. Weiss, Hale and Zahansky Strategic Wealth Advisors do not provide legal or tax advice. The tenured financial services team strive to support clients in achieving their financial life goals. For more information regarding wealth management and customized financial planning with Weiss, Hale and Zahansky Strategic Wealth Advisors, please visit. www.whzwealth.com.