Student loans are a tremendous burden on many young people in this day and age and have put a strain on their ability to start saving for the future. However, their parents, in many cases, are also exposed to student loans since many assumed the obligation for their children using Direct Plus loans. These loans will be paid out on behalf of the student but with the repayment obligation resting with the parents. In addition, repayment begins immediately after the funds are dispersed without the normal deferment period that is a hallmark of loans made directly to students. All of these facts can combine to put a dent in retirement savings especially when multiple loans are taken out for multiple children. As a result, it is preferable to have children take loans out in their own name since it will shift the liability and provide more generous repayment options. Helping children fund school is a admirable goal but it is better, from a retirement perspective, to give the money to the child to use for payments rather than face the risk of default by taking on the loan personally.
See Ashley Eneriz, The Dangers of Taking Out a Direct PLUS Loan, Investopedia.
Special thanks to Brian Cohan (Attorney at Law, Law Offices of Brian J. Cohan, P.C.) for bringing this article to my attention.
