When Paying Off Student Loan Debt Makes Sense
Managing how to disperse the final expenses of a life insurance policy and other assets is a very important financial task. But that doesn’t mean it should be complicated. If the heir is a grandchild, it’s important to take a look at their existing financial lifestyle. Are they straddled with a lot of student loan debt? It may be wise to offer to pay that off, or at least a portion thereof. Here’s when it makes sense, and when you should hold off.
Not If Their Employer Helps Pay It Down
Some corporations that hire college grads with a specialty degree offer generous benefits packages. Part of this may include paying off all student loans or a portion of the total amount. If this is the case directing a portion of their inheritance to pay off student loans may not be a wise choice. As an alternative, when calculating life insurance policies as well as a will, funds can be designated to go toward educational-related expenses not covered by student loans like food and off-campus housing.
Not If Their Low-Interest Student Loans Are Almost Paid Off
Most student loans are low interest, but the downfall is they are stretched out over long periods of time. The length of the loan is what makes the borrower pay more over the course of the loan. If the loan is almost paid off at the time the grandchild receives the inheritance, it may not be feasible to pay it off. Instead, designate the inheritance to go directly to the heir and they can decide to pay off the balance or use funds for something else.
Consider Paying off Multiple High-Interest Loans
Many students have to borrow through credit unions or banks to gain financial assistance. This is because not all student debt accrues through low-interest government-funded loans. This is where the interest and terms are often much higher resulting in substantial monthly payments. If a grandchild has multiple loan payments of school-related expenses, paying these off is a positive financial move.
Pay off Debt If They Are Struggling Financially
Not everyone who graduates or does not graduate from college gets a high-paying job with a low debt load. Financial struggles are common for many American households. Leaving a grandchild a substantial inheritance once they reach a certain age can help relieve financial burdens. Paying off even low-interest loans at this point can reduce monthly debt payments and give them more money in their pocket each month.
It’s a tough call deciding whether to leave grandkids a cash inheritance or to pay off their student loans. The main goal is to relieve their financial stress moving forward. Leaving a legacy behind that is a reminder of your generosity is all that matters.
~Here’s to Your Financial Health!