How Not to Ruin Your Retirement Paying For Your Children's College Education

Robert Powell: Parents and grandparents are increasingly taking out loans, typicallyParent Plus Loans to pay for their children's or grandchildren's college education and it's causing some problems according to some new research. Consider, among parents and grandparents taking out loans for children and grandchildren, only two and three say they save on a regular basis for retirement. That means one in three aren't saving on a regular basis. Also, nearly one quarter of all parents and grandparents who borrowed money report that student loans have led to conflicts within their families. Three and four of those who borrowed money took on this debt for children or grandchildren primarily out of a desire to help just under half felt it was their best option and one third felt obligated to do so. One in four said it was both desire to help and a feeling of obligation. What's more, the survey found that just less than one third of parents and grandparents with loans for dependent report that their family knew nothing or very little about their student loans.

Robert Powell: Given that findings, what are some of the most important things parents and grandparents need to know before taking out a Parent Plus Loan for their children's or grandchildren's college education? Here's what we published in a recent Retirement Daily article. One parent plus loans generally have the highest interest rates of any federal loan program, typically well over 7% and sometimes close to 9%. Two, Parent Plus Loans have fewer repayment options than federal student loans. They generally cannot be repaid under an income driven repayment plan. Though there is an exception if the loans are consolidated by the federal direct consolidation program, they can be repaid using income contingent repayment or ICR plans. But ICR is far more expensive than the more widely used income driven plans, like the income based repayment plan or the pay as you earn plans. For more, read TheStreet's Retirement section and subscribe to Retirement Daily, which publishes articles featuring the nation's top financial planners.