Doug Stephens, MBA

Doug Stephens, MBA, helps clients of all ages. He often counsels young people crushed by college loans. He begs, “Grandparents, please help your grandkids!”

If you are an older Baby Boomer or are from the WWII generation I am talking to YOU. Your grandchildren need you. You can take a few steps that may free your children’s kids from a lifetime of debt. If you can give them a little help it may allow them to one day to retire like you. Without your assistance it may be out of their reach.

Every day in my practice I meet young people that are deeply in debt due to school loans. We are talking $50K, $100K or even more. At the very time when many of these new grads are just starting a career, they are hamstrung with debts that may take decades to pay off. The reason for this is, as newcomers to a career field, most of these graduates earn modest salaries. They typically do not own any assets and have to buy household goods, cars and so forth as they start from scratch.

In the early years after college it is difficult for young people to pay off debt. Sometimes they make minimum payments and decide to work on it later. Educational loans tend to have very long maturities and favorable interest rates that encourage this approach. It is easy to make small monthly payments over long periods of time. The problem is that over time it can become increasingly difficult to retire these loans. Paying down educational debt begins to take a back seat to all of life’s other responsibilities. These may include getting married, raising children and buying a home. Meanwhile those school loan balances just seem to hang around and never get paid off.

Several factors have made the preceding scenario common-place. First of all, higher educational institutions have raised tuitions faster than the rate of inflation for years. Schools and lenders have encouraged students to go deeply into debt to pay these bloated fees. Secondly, parents have turned a blind eye to the amount of borrowing done by their children. They rationalize that education is “worth it” and that their kids can pay back these monstrous sums “later”. A third factor is that modern day college students tend to lead lifestyles that are heavy on consumption and long on borrowing.

This is where you grandparents come in. I suggest that you set aside funds to help pay off your grandkids’ college loans. This can be done while you are living or can be done via your will. The number 1 rule is don’t sabotage your own retirement. Don’t give away money that you need to ensure a comfortable lifestyle. Helping your grandchildren in this manner is probably best done by leaving them money in your will anyway.

Here is the tricky part of my plan. If you inform your children that you are leaving money to their children (ie. your grandchildren) it may cause some family turmoil. It might also encourage your grandchildren to run up more debt to get a “bigger piece of the pie”.  Maybe the solution is to just quietly specify in your will that X dollars are available to pay off school debt for grandkids if needed. If not needed, the funds can go to others.

It really doesn’t matter how you do it. But if you can, please help your grandkids with their school loans. I see people every day that are 40, 50, even 60 years old that have large school loan balances. A lot of these people may never pay off those loans. I don’t want your family members to get stuck in that situation.

Doug Stephens, MBA, is a Dave Ramsey Counselor for Dallas and Ft. Worth. He is a specialist in personal and small business finance. Doug is a successful real estate investor and frequently advises clients on purchases and sales.

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