Borrowing Money From Parents for MBA: Good Credit Risk?

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Hey dad, can I borrow $150,000 to get my MBA?

I can only imagine the reaction from my dad if I asked that question 20 years ago.  What’s the matter kid, did you lose your mind?

Bloomberg/Business Week had an article about kids hitting up their parents for loans to pay for graduate school.  The issue of borrowing money from parents was talked about on this blog before.  It’s a great deal for kids but it’s a questionable proposition for the parents.

Why?

1.  Parents are conflicted by the love they have for their kids.  They can’t possibly separate the emotion from the business deal.  Parents should gift the money with no expectation of repayment.  Don’t lend!  It’s a repayment fantasy!

2.  Parents won’t do the appropriate credit analysis on their kids.  What’s the source of repayment?  What’s the alternate source of repayment?  What’s the kid’s history of repayment?  Is the loan for sugar and lemons still outstanding when they started that lemonade stand at age 7?

3.  The incentive to do well in school may be less if someone else is paying the bill.  The Bloomberg piece showed kids like the idea of no recourse if they don’t repay the parental loan.  Other sources of lending will come after them.  It’s human nature that if I have little at risk there is less incentive to push hard for results.

4.  There’s no guaranty a job will be waiting at graduation that will cover the loan payments.  Parents, you should expect to be repaid in this lifetime.  Yours, not theirs.  The tech bubble was created by expectations of future income.  Don’t buy into that illusion.

5.  Legacies are created and destroyed by debt.  The parent and child will alter their financial legacy forever by becoming lender and borrower.

Parents, are you strong enough to resist the loan application from your kids?  Need someone to tell them no?  Call me.

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About Michael Shelton

Your Business Coach Facilitating Delegation and Work Group Engagement Michael Shelton has over twenty-five years of business and military accomplishments, including extensive experience with one of the largest, publicly traded real estate investment trusts (REIT). He is a qualified business coach with assignments in cross-functional work group management, strategic planning, unit leadership, joint venture acquisitions, executive education, mentoring, training and merger integration. Michael has accumulated best practices for building committed work groups from more than $4 billion of capital markets transactions and commercial property development. He served as a commissioned officer and helicopter pilot in the U.S. Army, and earned his MBA from The University of Arizona. Michael has served as a major conference panelist and is the author of Cash Flow Rich, Winning Ways to Evaluate and Finance Real Estate. Today, he helps business owners get more work group engagement as President and CEO of Shelton Business Services, LLC in Scottsdale, Arizona. Disclaimer: I don't offer investment, legal or tax advice. Talk to your broker, accountant or lawyer for investment, tax and legal help. I might own stock in the companies I mention on-line. My posts, tweets and other on-line activity are my personal thoughts and don't represent my employer or company.
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One Response to Borrowing Money From Parents for MBA: Good Credit Risk?

  1. Pingback: Celebrating the 75th Anniversary of ProBorrower | Borrowing Money: Your Handy Guide

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