Skin In The Game
As our sons have headed off to college, with mom and dad financing most of the cost, we wanted them each to have some “skin in the game” by getting a part-time job during summers (and later, during the school year) to pay for “lifestyle expenses” (anything that was not tuition and fees, room and board); and by applying for a $5000 unsubsidized Federal Stafford student loan (6.8% interest rate) each year.
Our motivation is:
- We want to ensure they graduate, and were motivated to finish in four years.
- We also want them to have some appreciation for the cost of their education (which far exceeded their $5K investment) which we had worked many years to finance – and that loan will make some impact on their perspective (after graduation, when the payments kicked in!).
- We have encouraged them to return home for a few months after graduation and pay off the loan first before moving out again, with the goal of being debt-free. For motivation we had them read about this Harvard grad’s journey of paying down $90K in debt in just 7 months http://nomoreharvarddebt.com/.
What can slow down the repayment process, if stretched over the full term of the loan, will be the interest on the loan itself. We may consider paying off the loans for that reason, and have them repay us – but will want some formality between us. For one idea – this business will set up a loan tracking system to easily automate, monitor, and track the loan – ZimpleMoney. http://www.zimplemoney.com/Why-Zimple-Money-Finanical-Transactions.aspx.
We have a UC senior graduating in June 2014 to test the repayment process on, and a freshman starting this Fall who will take out his first loan in his name. We’ll see how this works for each of them!
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